Good afternoon, ladies and gentlemen. Welcome to Banco Santander-Chile Q4 2021 results Conference Call on the third of February 2022. At this time, all participant lines are on listen only mode. The format of today's recorded call will be a presentation by Banco Santander-Chile management team, followed by a question and answer session. Today's host is Mr. Emiliano Muratore, Chief Financial Officer of the company. Without further ado, I would now like to pass the line to Mr. Emiliano. Please go ahead, sir. The floor is yours.
Thank you, Michael. Good morning, everyone. Welcome to Banco Santander-Chile's Q4 2021 results webcast and Conference Call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Managing Director of Investor Relations, and Carmen Gloria Silva, Economist from our research team. Thank you for attending today's Conference Call. We hope you all continue to stay safe and healthy. The bank rounded off 2021 with another solid quarter, with a strong ROE and solid financial performance. Thanks to our successful digital strategy, rising NPS levels, strong margins, sound asset quality, and impressive efficiency levels. Before we get into the results, Carmen Gloria, an economist in our research department, will start with an update on the macro scenario beginning on slide 4.
Thank you, Emiliano. Since our last call, the number of COVID contagions has increased substantially due to the fast spread of the Omicron variant. Despite the new infections, the number of deaths associated to the pandemic has decreased, and the health system remains in good shape. This has occurred in a context with more than 86% of the population have received the full immunization program, including children, and 63% have the booster. Some mild sanitary restrictions have been imposed once while others have been lifted. For now, we expect this new wave will have a relatively muted impact on the economic outlook. Moving on to the slide 5, we will now give our outlook for the economy in 2022. During last year, the Chilean economy saw strong recovery.
The increase in mobility, thanks to the fast vaccination rollout and significant liquidity injections through pension funds withdrawals and public transfers for about 7% of GDP, led to a GDP growth of about 12%. With this growth, economic output not only recovered its pre-pandemic level, but also expanded beyond its trend. The strong domestic demand, the depreciation of the currency, and international pressures led to a sharp rise in inflation, which ended the year at 7.2%, its highest level since the commodities boom in 2000, along with a hefty deficit in the current account. The central bank has moved quickly, raising the monetary policy rate by 500 basis points since June up to 5.5%, above its neutral value.
It's likely that the board will raise the policy rate again in March, ending the hiking cycle with the rate between 6.5% and 7% by the end of Q1 . With inflation and growth probably moderating in the second half of the year, we see some room for rate cuts by the year end. For this reason, we forecast the monetary policy rate to reach 5.5% by year end. Meanwhile, public spending will decrease substantially in 2022, about 20%. This, compounded with the monetary contraction and the natural cyclical adjustments of some durable goods expenditure, will slow down the economy. Households still have a relevant volume of liquid assets that could be spent in the short run. If that were the case, then activity could expand by more this year.
On the other hand, investment, which experienced a substantial recovery due to reposition of obsolete inventories, will be affected by tighter financial conditions and domestic political uncertainty- related to the constitutional process. While there is no clarity regarding basic future rules, it will be difficult for there to be fast progress in new large-scale projects. For our baseline scenario, shown on slide 6, we estimate that the economy will grow by around 2.5% this year. During the first half of the year, the GDP growth rate will remain high, while the second half will see negative rates, with which the activity again converge to its trend. A delay in the constitutional adjustment process could rise the growth to values near 4%, but this will imply a more intense adjustment with a contraction activity during 2023.
In turn, a significant moderation in investment caused by the domestic political situation or the worsening of the foreign scenario could substantially hamper the activity during this year, resulting in 1% growth only. To the latter are added pandemic-related risks. Inflation will remain high until the end of the year’s first half, a period in which it could reach 8%. It could then start to decline gradually, ending in 2022, between 5% and 5.5%. Onwards, the convergence toward the 3% target will develop slowly and occurring in 2024 due to the delays originating in the closure of gaps. Overall, as we show in slide 7, another relevant aspect for growth in the medium term is the development of institutional events and specifically the drafting of the new constitution and the new Boric administration.
While these processes could create noise and volatility in markets, we believe the balance of power in the Congress and the two-thirds majority requirements in the constitutional convention should offer greater stability, which could be favorable for investment and development. Thank you.
Thank you, Carmen Gloria. We will now move on, excuse me, to slide 8 to focus on the evolution of our various digital initiatives in 2021. On slide 9, we summarize our strategic initiatives, identifying those that we classify as run the bank that contribute to to consumer satisfaction and productivity, such as Life, the Work Café, our Santander Green initiatives, and Prospera, an initiative launched in the last few weeks. The bank also has a strategy to change the bank, transforming the bank into a platform so that our clients can use us as a channel rather than just as a traditional banking service. This includes our initiatives such as Superdigital, Getnet, Klare, and Autocompara. This strategy has led to important improvements in profitability, client growth, and satisfaction in 2021. On slide 10, we show key data for Santander Life, our most successful initiative.
Santander Life achieved in 2021 a net promoter score of 76, making it one of the highest-ranked product offerings in the bank. Client growth also remains strong, with Santander Life reaching over 900,000 clients as of year-end, an increase of 86% year-over-year. Of these clients, 66% are active, meaning that their Life account is their main account, but only 17% are considered loyal or fully cross-sold clients, demonstrating the high cross-selling opportunities we have in this new segment. Santander Life is also rapidly monetizing. As of year-end, Life clients had $1.2 billion of demand deposits, surpassing by many times the amount clients have deposited in similar competing platforms. On the loan side, Life clients had a total of $270 million in consumer loans, a 43% year-over-year increase.
These clients are also beginning to purchase other products, such as mutual funds and time deposits that have grown 148% and 130% respectively year-over-year. Overall, Santander Life achieved an impressive gross income of CLP 81 billion in 2021, with the majority of this income coming from risk-free sources. On slide 11, we show how the high growth Superdigital attained last year. Superdigital is a prepaid digital product aimed at the unbanked who seek a low-cost banking account. Superdigital clients have grown 119% year-over-year, reaching over 284,000 active clients. This growth has been helped by alliances with companies such as Cornershop and Uber as a way of attracting new clients.
Furthermore, in January, the Todas Conectadas initiative by the UN with Mastercard and Microsoft that looks to offer tools for women entrepreneurs chose Superdigital as their financial platform for Chile. Getnet, our new acquiring business, had a phenomenal first year of existence, as shown on slide 12. Getnet was officially launched in February 2021 and sold over 68,000 POS with over 21,000 in Q4 alone. 92% of Getnet's clients are SMEs, our target client. In just 11 months, Getnet already has a market share greater than 20% in POS. Our NPS score for this product is also strong at 74 points. This product has been quick to monetize, generating CLP 7 billion in fees since its launch. On slide 13, we introduce our latest digital initiative called Prospera, which we launched in January of this year.
Prospera is a platform similar to Life aimed at micro entrepreneurs. Just like Life, Prospera seeks to increase bank penetration levels by first focusing on transactional services by offering a checking account with a cheap monthly fee. There is no requirement of a prior relationship with the bank or minimum sales levels. Prospera also includes the option to acquire a mini POS for a one-time charge, allowing new clients to rapidly be able to sell their products using our acquiring services. On slide 14, we see how the bank continues its process of transforming the branch network, focusing on the Work Café model and closing less productive branches.
Overall, our branch strategy, coupled with our other digital initiatives, is driving an important rise in productivity with volumes per point of sale increasing 19% year-over-year and volumes per employee increasing almost 14% year-over-year. As can be seen on slide 15, these digital platforms and branch structure have been well- received by our clients. The graph on this slide demonstrates how the bank has consolidated its leading position in NPS among our main competitors. On slide 16, we show how these efforts are translating into record client growth. With the introduction of our digital products, a more productive branch network, coupled with higher NPS scores, we surpassed the 4 million client mark in 2021. Since the beginning of the pandemic, total clients have increased 20%.
In the same period, total digital clients have grown 62%. Moving forward to slide 17, we show how this growth in clients led to record checking account openings in 2021. In 2021, one out of every two accounts opened in the Chilean system was opened at Santander. As a result, our market share in checking accounts increased 410 basis points to almost 29%. In 2021, we pushed forward our ESG products offering through our Santander Verde products and retail banking and green financing through CIB, as can be seen on slide 18. Santander Verde are our products and services to help our retail clients become greener. For companies, we have also provided funding and structuring for the main ESG bond and loan facilities in Chile.
With these initiatives, we expect to have the most comprehensive ESG product offering to help our clients and help Chile reach the demanding emission targets set by the government for 2030. In Q4 , we also held our ESG talk with the market. During this event, our CEO outlined our 10 responsible banking commitments to be reached by 2025. The main commitments were, first of all, to be the best company to work for in Chile, to increase the percentage of women in managerial positions to 30% by 2025, eliminate completely the gender pay gap by 2025. Through our financial products such as Life, financially empower more than 2 million people by 2025. Finance projects for at least $1.5 billion through our ESG framework through 2025.
To ensure that 100% of the electrical energy we use comes from renewable sources. An important step taken last year to reach this goal, as we announced in our ESG talk in November, was that Santander Chile will be the first bank to produce its own renewable energy. An agreement was signed in which six solar plants of 300 kW each will be built and fully operational this year. Finally, to be carbon neutral by 2025 in our own operations, and by 2050, we should be 100% carbon neutral, including the impact on emissions of our loan portfolio. On slide 20, we can see how our efforts are being recognized by the various ESG indices.
In Q4 , Dow Jones Sustainability Index confirmed us as the only Chilean bank to qualify for the emerging markets index. Vigeo Eiris has classified us as advanced, ranking us number 3 among all the retail banks they evaluate. We have an A score from MSCI, and we are included in the FTSE4Good Index for emerging markets, emerging Latin markets and emerging global, as well as the S&P IPSA ESG index. Moving forward to slide 21, we will now look at our financial results. Slide 22 shows the strong results obtained by the bank last year. In 2021, net income was up 49.8%, with the ROE increasing from 14.5 in 2020 to 22.7 in 2021. Client activities played an important role in boosting results.
The net contribution of our business segments, which includes, among other things, the impacts of inflation on results, grew 31.7% in 2021, with results from retail banking increasing 21.6%, middle market 18%, and CIB doubled its results. On slide 23, we can see how the bank has significantly outperformed our peers in net interest margin, efficiency, and ultimately ROE, demonstrating that these impressive results are not just related to post-COVID reaction, reactivation or the macro environment, but also due to the successful execution of our strategy, especially on the digital front. One of the most important drivers of our results was net interest income, as can be visualized on slide 24. NII increased 14.7% Q-on-Q, driven by volume growth and a higher inflation rate.
In Q4 , US inflation rate reached 3%, compared to 1.3% in Q3 , driving NIMs to 4.5% in the quarter. At the same time, this high inflation rate has triggered the central bank to sharply increase the monetary policy rate. This should put pressure, some pressure on margins, since in the short run, higher rates drives up funding costs quicker than asset yields. This will be partially offset by higher loan growth, which should lead to a better-yielding asset mix. For this reason, NIMs in 2022 should be in the range of 3.9%-4% for the full year. Margins also continue to benefit from the improved funding mix, as can be observed on slide 25.
Total deposits grew 11.5% year-over-year, but decreased 6.1% Q-on-Q. We continue to see a strong increase in non-interest-bearing demand deposits that increased 3.1% Q-on-Q and 22.9% year-over-year, while time deposits decreased 18.9% Q-on-Q. On slide 26, we review loan growth, which accelerated in Q4 . Total loans increased 2.5% Q-on-Q and 6.5% year-over-year. During the quarter, our CIB segment experienced strong growth of 12.6% Q-on-Q as the economy reopened and large corporates sought funding in the form of corporate loans as the bond market remained illiquid. Our Middle Market segment also saw signs of reactivation with loans growing 2.2% Q-over-Q.
The depreciation of the peso also resulted in a translation loss of dollar loans denominated in foreign currency. Loans to individuals increased 9.2% year-over-year and 3.5% quarter-over-quarter. Consumer loans increased 2.9% quarter-over-quarter. This was driven by 11.2% increase in Santander Consumer Chile, our subsidiary that sells auto loans which represents 14.5% of total consumer loans. Despite contracting 4.3% year-over-year, other forms of consumer lending increased 1.7% quarter-over-quarter as the economy continued to reopen and travel restrictions were lifted. Mortgage loans increased 11.8% year-over-year and 3.9% quarter-over-quarter.
U.S. inflation rate of 3% in the quarter also resulted in a positive translation impact on mortgage loans as most of these loans are denominated in U.S. Moving on to asset quality on slide 27, we can see how the evolution of asset quality remains solid. The NPL and impaired loan ratio decreased to 4.5% and 1.2% respectively by year-end. The coverage ratio of NPLs also remained high at 270%. These positive trends were seen equally across different products. As we can see on slide 28, these positive asset quality indicators led to a cost of credit of 1.2% for 2021. Given the uncertainty around the COVID-19 crisis, the board felt it was prudent to take on additional provisions to ensure high coverage ratios during the pandemic.
In total, the bank has set aside since Q4 of 2019, CLP 258 billion in additional provisions, including CLP 60 billion in Q4 . If we exclude these additional provisions, our cost of risk for the year would have been 0.8% with a quarterly cost of risk of 0.7% in Q4 . On slide 29, we take a quick look at non-interest income trends. Fee income had an outstanding quarter, increasing 10.7% Q-on-Q and 24.5% year-over-year, reflecting the fruits of our digital strategy and the strong growth in clients during recent months. Fee growth was driven by strong opening of checking accounts thanks to the popularity of Santander Life and Superdigital product offering.
Card fees increased 30% year-over-year due to greater card usage while insurance brokerage also grew through our digital platforms like Klare and Autocompara. Furthermore, Getnet, our acquiring business that we launched in Q1 of 2021 has already contributed CLP 7 billion in fees since its launch. As shown on slide 30, the rebound in revenues in the quarter was also accompanied by good cost control. The bank is currently carrying out its $260 million investment plan for the years 2022, 2023 focused on digital initiatives both at the front and back end of operations. Operating expenses increased 4.1% year-over-year despite higher inflation in the year and the execution of our investment plan.
The year-over-year growth of administrative expenses was mainly due to higher expenses- related to spending in IT as the bank focuses efforts on improving the digital platforms for our clients as well as greater marketing expenses, especially Getnet in Q4 . The bank booked CLP 4.7 billion in 4Q 2021 in expenses for Getnet. Finally, various administrative expenses such as rent or IT expenses are either denominated in foreign currencies or USD. Therefore, the depreciation of the peso and the rise in inflation had a negative impact on administrative expenses in the quarter. This rise in administrative expenses was offset by lower personnel expenses as productivity increased. The bank's efficiency ratio reached an impressive 36.6% year-to-date with a ratio of 33.8% in Q4 . Regarding capital ratios on slide 31, we have finally entered Basel III.
Our risk-weighted assets as of December 2021 are now reported under Basel III and have increased 4.1% quarter-on-quarter compared to September, due to the incorporation of market and operational risk-weighted assets into the bank's total risk-weighted assets. On slide 32, we show how our capital ratios for year-end and fully loaded under Basel III. As of December 2021, our core capital ratio was 9.6% with a total BIS ratio of 15.9%. It is important to point out that various changes will be phased in to our core capital ratio, which should drive them upward. In January, these changes will already show an impact with our core capital ratio improving to 10.5%.
Our fully loaded core capital ratio in January is estimated to reach 10.6%, well above the 9.4% minimum set by our regulators and board for the bank by 2025.
This includes all of the buffers and a Pillar 2 requirement of 0% recently set by the CMF for us. Therefore, we do not foresee any changes in our capital strategy or dividend policy due to the implementation of Basel III. We estimate a payout of 50%-60% of 2021 earnings to be paid in April 2022, if approved by the board and shareholders. This would imply a current dividend yield of between 5%-6% for the bank shares. To conclude on the next slide, the strong 2020 results leads to a positive outlook for 2022. The following guidance is set using a base scenario of GDP growth of around 2%, with UF inflation of 5.5, and an average monetary policy rate of 6%.
Under this scenario, loan growth should reach 6%-8% in nominal terms, driven by consumer and commercial loans. This points to a NIM for 2022 of between 3.9% and 4%. Cost of risk should be in the range of 0.95%-1%. Client growth should continue to drive non-NII, which should grow in the mid- to high-single-digit range. We expect costs to grow below inflation and an effective tax rate of around 20%. All in, this should lead to an ROE of approximately 20% in 2022. With this, I finish my presentation. At this time, we gladly will answer any questions that you may have.
Thank you very much for the presentation. We will now be moving to the question and answer part of the call. If you have any questions, please press star two on your keypad. That's star two, and wait for your name to be called. If you are dialed in via the web, you may also ask a voice or a text question. We will now give a moment or so for the questions to come in. Thank you. Our first question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir. Your line is open.
Thank you. Hi. Good morning, Emiliano, Robert. Good morning, everyone. Congrats on your Q4 results. Three questions from my side. The first one is on the political landscape. We have seen some moderation of the new government. However, how do you see the potential risks? I don't know. I would like to hear your thoughts on the tax reform, the change in the Constitution, and the pension reform. And on the tax reform, I believe the effective tax rate of the Chilean banks remains low when compared to other sectors. For example, Andina, the effective tax rate is at 30%.
Considering this tax reform and aggressive social spending policy of the new government, do you think they could be exploring to limit some of the deductions on the tax rate of the Chilean banks? That's the first question. My second question is on your expectations on asset quality. As you mentioned, you're expecting a customer risk of 0.91% of average gross loans. But just wondering if this considering any potential release of provisions. My last question is on your ROE expectations. As you mentioned in your presentation, you're expecting approximately an ROE of 20%. If putting that into our numbers, would this imply earnings contraction in this year? Would that be reasonable in your expectations? Thank you.
Hello, Ernesto. Thank you for your questions. Going to the first one about the political landscape. I think that much of the uncertainty has already been, like, cleared. I mean, now we know the government, the cabinet and so far, the reaction from the market has been, like, positive. Going forward, the constitutional reform is the pending thing to be known. We still believe that the two-thirds quorum that is required to approve any of the articles of the Constitution is a good safety net to have a broad consensus regarding the Constitution and that we see it as positive thinking about the outcome.
Regarding the potential tax reform that has been announced from the upcoming government, actually, there are not any significant or any deductions especially applied to banking. It depends on the general tax law and the effect of the inflation on the non-monetary asset and liability. So far there hasn't been any discussion regarding impact on banks regarding the tax reform. We all know that a tax reform is coming. It's one of the priorities that has been set by the new government and actually by Mario Marcel, the upcoming Minister of Finance.
In that regard, also part of the strategy going forward from the government, apart from the tax reform, I think that it could be a fiscal prudence in general terms in order to reach a more balanced fiscal situation than what has been announced by the government so far. Going to your question, nothing specifically regarding banks has been put on the table and we don't foresee anything special for banks in that regard. Going to your second question.
About asset quality, no, it's not considering any reversal of voluntary provision. It's like the base case for the underlying, let's say, cost of risk for this year. Yes, I mean, regarding the guidance, it's the bottom line is from flat to maybe or around flat, comparing to last year, slightly negative net income as an absolute, in absolute terms.
Perfect. Super helpful. Thank you very much. Just any comments on the potential pension reform?
No, actually. Well, now part of that reform has already now passed by the current government with this universal guarantee pension that it's, I think, an important pillar of the new or the future pension system. We'll know more about that coming forward. I mean, but the first priority stated by the upcoming government has been the tax reform. Maybe, after that, they will tackle the pension reform, but nothing special to comment on that.
Perfect. Thank you very much.
You're welcome.
Thank you very much. Our next question comes from Mr. Juan Recalde from Scotiabank. Please go ahead, sir. Your line is open.
Hi. Good morning. Congratulations on the result, and thank you for taking my question. The first one is related to dividends. What's the dividend payout assumption in the 2022 guidance? The second one is related to Santander Life. Can you provide us with an estimate or some information to help us think about the unit economics? For example, the client acquisition cost and also in terms of revenues expectations for Santander Life and the new products that are expected. I remember you had mentioned that the expected revenues for this year, for 2021, were around CLP 60 billion-CLP 70 billion, and the revenues ended up being CLP 81 billion, so better than expected. I was wondering, what's the expectation for 2022, and what would be a breakdown of revenues by fees and by interest income? Thank you.
Thank you, Juan, for your questions. Bob, I'm taking the first one. You take the second. Regarding the assumption for dividend policy, we are not planning any change. We are assuming the range from 50%-60% payout. I mean, the final proposal will come from the board and finally be decided at the board. That range is the one implied in the guidance Robert mentioned. Bob, do you go with the second one? You're on mute.
Hello. Yes, I'm here.
Okay.
Santander Life, yeah, as you said, it's had a very good performance. It's generating good income levels. Some economics. Santander Life, its fee structure is actually very simple. We don't charge for transferring money or taking money out of the ATM. There's no, like, hidden fees. It's one flat fee just to have the account. It's in UF, but it's roughly CLP 3,000, a little less per month. Initially, the main source of income is a client who signs up and gets a full-blown checking account with no restrictions. It's not a debit card or a prepaid card. It's a full-blown checking account that has no, you know, minimum income level requirements, et cetera. But you have this flat fee.
Now that we have 800,000 clients, when you multiply that by the fee, that's kind of like the fixed risk-free income that these clients will generate. In 2022, the fact that, you know, the client base has been growing very strong, and we're starting the year with 800,000, and last year we started the year, I believe, with something less than 300,000. You already have a big growth in the base fee income, okay? At the same time, as we said, a lot of these new digital platforms, even Superdigital, have a lot of clients, but they don't have very much money in checking accounts, okay? They're prepaid digital debit cards.
Most of the platforms probably have $15 million-$20 million in demand deposits. Since Life is a full-blown checking account, and it has a lot of active users, we already have $1 billion equivalent in pesos in non-interest-bearing checking account money. That basically takes into account that yields at least monetary policy rate, okay? At the same time, Santander Life already has around $240 million or so equivalent in pesos in consumer loans. There, we believe there's a lot of room for growth. Obviously, we're not going to go crazy. You know, the idea is to give loans to those people who have an income.
You know, you can open a checking account without the income, but with a loan you need to go through various other filters. It is an attractive product, and we expect to grow. Last year, lending in Santander Life, even though it's way below the deposits, it's growing 30%. On top of that, we are selling a very simple mutual funds investment product that also generates fees. As you can see, the monetization, the income potential in life, I think is very strong for 2022, and should grow at least what the client base is growing. At the same time, the cost, the acquisition cost, is actually very low.
It's around $1 on a marginal basis, just because the great majority of the clients are done digitally. In fact, more than 70% of the Santander Life clients become a client through their smartphone. Okay. That's a little bit some detail on Santander Life.
Thank you. That's very helpful.
Thank you very much. Thank you. We'll be moving to the next question. Next question comes from Mr. Carlos Gomez-Lopez from HSBC Securities. Please go ahead, sir. Your line is open.
Hi, good morning, Robert. In terms of the structural changes that we see in the system, we know that there has been some problem with the long-term funding for mortgages. Now that there are no more withdrawals from the pension funds, but we may have the changes in the system coming up, how do you envision your growth in long-term assets such as mortgages? Do you expect to continue to be using the UF paper indefinitely? Thank you.
Hello, Carlos. Thank you for your question. Yes, as you said, I mean, part of the impacts of the pension withdrawals has been a weakening of the local capital markets and our capabilities or our capacity to raise long-term funding in UF. I think that now that has gotten better. I mean, new pension fund withdrawals, I mean, are unlikely to happen in the short- term, at least according to what has been stated recently by the upcoming government. We see that as a positive going forward.
I mean, there we have, we have seen some new activity in the local capital markets, and we do foresee that our capacity to reach or to raise funding in UF in the domestic market will be there, not in the same amount or in the same depth that was before, but will be there. Also it's important to point out there all our efforts to globalize and to go into the international market. I mean, we began that process more than 10- years ago. I mean, now we have access to the Japanese, the Swiss, the UF market, the rest of Asia also.
That has been our strategy even way before the pension funds has suffered the withdrawals, because we always thought that depending on our long-term funding in a few names, because at the end, you were talking about from five to 10 relevant local players was not a good position to be in. That's why we did all these efforts to globalize our funding base. Going forward, we do expect to be able to fund the long-term assets between local and international markets.
It's also true that the demand for long-term assets, let's say for long-term mortgages, now is showing a slowdown considering the new level of rates because the funding will be there, but the level of rates is higher, and that is, let's say, making the demand or the appetite for mortgages to slow down. The combination of those two things, I mean, slower demand and the combination between domestic and international market, leave us like comfortable that we'll be able to keep that business in a healthy way going forward.
Thank you very much.
Thank you very much. Our next question comes from Mr. Carolina Guerrero Matta from Philadelphia Financial. Please go ahead, sir. Your line is open.
Thanks, guys. A couple questions. First of all, what was the net interest margin in the month of December, not the average for the quarter?
Bob, do you have that number in mind?
If you want, I'll look it up real quickly, and we'll go to the next question, and I'll jump in and say it. Okay?
Okay. Second, you gave guidance for the NIM for the year next year, but what do you think it'll be in tQ1 of this year? Bob?
For Q1 of this year, we're expecting our UF inflation expectations is around 1.5%, okay? Which should give us. Obviously, short-term rates are also higher. We're looking at a NIM close to around 4% for Q1 . Okay? That's more or less the expectations with the inflation, which is still relatively high, but coming down from the 3%, but also a higher short-term rate.
I'm sorry, wasn't it 4.5% in Q4 ?
In Q4 , the NIM was 4.5%, and for this fQ1 , it should be around 4% or so.
You expect it to fall 50 basis points in Q1 ?
Yes.
Yeah.
Okay.
The NIM for December was 4%.
Okay. Finally, if inflation stays at the current 6.5% or 6.6%, what do you think the ROE will be in 2022? Would it still be around 27, 28?
I mean, if you take only the inflation part, it will be positive for NIMs and for ROE, but then that will imply the central bank hiking rates even higher than what is expected in the market, and that will counterbalance a significant part of the benefit coming from inflation. I mean, in 2021, we had a high inflation and rates not so high yet because the central bank started the hiking process by late in the year. This year we are starting with higher rates, and if that is the scenario of inflation that you are mentioning finally happens, the central bank should raise rates faster and harder.
We don't see that the combination of two things should imply those kind of ROE and should tend to around 20% we are guiding.
Okay, thank you.
Thank you very much. Our next question comes from Mr. Alonso Garcia from Credit Suisse. Please go ahead, sir.
Hi. Good morning, everyone. Thank you for taking my question. I have actually two questions. My first is regarding, it's a follow-up on cost of risk. I mean, you mentioned that you are not considering in the guidance the reversal of any of the additional provisions that you have created for COVID. My question is there a timing or something you are waiting to see to happen before feeling confident about reversing these provisions? Any color on that would be very helpful. I mean, could that happen this year? Would that be something for next year, right?
My second question is, if you could give us an update on the regulation of interchange fees in Chile, and how could that impact your business considering the new structure of your acquiring business now that you have Getnet, and if there is any other regulation regarding the banking system being discussed that we haven't commented on this call. Thank you very much.
Thank you, Alonso, for your questions. I mean, regarding the potential reversal of provisions, as I said, I mean, we are not expecting that for this year. As of now, we see those as basically a protection for a downturn in the credit cycle, right? I mean, if the credit asset quality and the credit situation for us or for the system stays what we are in this condition as the one we are expecting, we don't foresee us tapping those voluntary provisions because as I said, we see it more as a way to counterbalance rainy days or worse scenario going forward rather than reversing it, let's say to boost even lower the underlying cost of risk we are seeing, which we see it as healthy and relatively good. As of now, we see it in that way.
I mean, during the year, we'll see how asset quality evolves and macro scenario evolves, and that could make the board reassess the situation. As of now, that is the situation. Regarding the interchange fees, we are just days away from knowing the regulation. It's supposed to be published during the first half of February and to take effect by April. We don't have any specific information about the final outcome. It is likely to have the fees reduced. I mean, I think no one is expecting the fees to go up.
It's important, the final outcome we'll know it like soon. For the next few weeks and the next call, we'll have more info or more guidance to share in that regard. I think it's important what you mentioned that in our case, the interchange fees I mean going down will affect our issuer business. Then we have our acquiring business. That is what we are doing in Getnet. Also remember that we still own 25% of Transbank. At the end, the reduction in interchange fee, the potential reduction is going to be a positive for the acquiring business. We are going to capture part of that through our 100% ownership in Getnet and also through the 25% we own of Transbank.
The net effect for us will be, let's say, lower than other banks that could only have the issuer part. As I said, we'll know more soon and we'll share more information regarding that in the next call.
Thank you, Emiliano. Just is there anything else being discussed either in the convention or in the Congress regarding regulations for the banking system?
No, I think that the interchange fees is like the most relevant, and it's very close to be known. There is nothing relevant apart from that. There is a project in Congress regarding interest rate cap that this has been there for a while. I mean, it hasn't, let's say, advanced. We haven't heard any news regarding that. On the positive side, this project to have a positive credit bureau integrating all the credit providers, not just the banks, including retailers and auto loans providers and all that's already in Congress.
There has been some discussion regarding the benefits of that, and it's not so evident how fast that will move forward. That is something positive to happen in the future if that project finally moves forward and we have a positive credit bureau with all the information and not just the one from banks.
Very clear. Thank you very much.
You're welcome.
Thank you very much. We'll take the next two voice questions, and then we'll move to the text questions. The next voice question is from Mr. Yuri Fernandes from JP Morgan. Please go ahead, sir.
Thank you, everyone, for the opportunity of asking questions. I have a follow-up on margins. If you can refresh us the sensitivity. I recall from many calls something between 10 basis points for rates and 20 basis points for inflation. If you can refresh if something has changed, given your guidance of margin compression in 2022, that would be great. I have a second question, regarding Getnet. Very good that you have like this fee growth, the CLP 7 billion year to date. My question is if you have like a guidance for Getnet growth in 2022. What that fee is about. Is that the net MDR? Like, what is that fee so we can have more visibility on, you know, like on the economics of Getnet?
Last but not least, on OCI, we note a better quarter for the mark-to-market on your equity proportion. If you can explain to us what happened, if this is related to the curves in Chile with the interest rates in Chile, or if this is related to something else, you may improve on your balance sheet so we can understand how OCI may evolve in 2022. Thank you very much.
Bob, do you take the first two, and then I take the third?
Regarding net interest margins, today, as you correctly, we have sensitivity both to the inflation and to the short- term interest rates. For every 100 percentage point increase in short- term rates, on average short- term interest rates, we have a sensitivity, a negative sensitivity in the first 12 months of around 10 basis points. For inflation, for every 100 basis points rise or fall in the UF compared to the previous year, the sensitivity is between 15 and 20 points. Okay. Obviously, why I say that range because we do move around the gap in UF inflation, you have more flexibility.
It's not so easy on the rate side, but we do have flexibility in terms of moving the gap with inflation. Today, I would say, given that we're expecting, as our economist said, more inflation in the first half, we'll probably have a little more exposure to the UF inflation, and it'll probably then lower the gap by year- end. Those are the two, like around 10 basis points for the short- term rate and 15-20 on UF inflation. Then, going forward obviously in 2023, what we should expect and also probably in this year is that loan growth should continue to pick up. The asset yields should slowly start to incorporate the higher yields.
That's why we think in 2023, you know, there should be stability or maybe increase in margin. Inflation is obviously important in bank results. That would be ridiculous to say the contrary. Remember last year we had very good results, no doubt. In Q4 , we had ROEs of 28%. Obviously, if that high inflation isn't sustainable, all right, just because of the price level. It's also the ROE isn't sustainable because that leads to higher rates. Kind of the above a normal ROEs in Q4 , you kind of go back to the mean and now that rates are rising. That's why we think this ROE guidance of 20% considering a more normal level. Okay? Regarding Getnet.
We finished like CLP 7 billion in fees, obviously a higher every quarter. We already have around probably more than 70,000 POSs now in January. That fee is basically the MDR minus the interchange fee. I think Getnet has really good news in the sense that last year we must have had an average of 20,000-30,000 POSs. This year, we're probably gonna have an average of probably I don't know, somewhere between 80,000-100,000 POSs. On top of that, the MDRs should...
Sorry, the net interchange fee should start to come down. Also, with the changes in the fees, the interchange fees, there's obviously a one-time hit as the bank is an issuer, but it should be able to permit acquirers to enter more markets. Okay? Today, again, that has been really focusing on small businesses. It's a good segment. We're providing very good service, but with the change in interchange fees, they should permit us to go after other clients. As we said in our Investor Day two years ago, we think that Getnet can be generating income of $20 million-$30 million, which would be roughly around, you know, CLP 20 billion-CLP 30 billion in fees. I don't know if we'll reach that this year, but definitely going in that direction.
Regarding OCI, as you said, I mean, Q4 , we got an improvement there considering the evolution of rates and inflation breakevens in the market. For 2022, I could say that the worst there is behind because the level of rates during the last part of last year was really high with all the withdrawals, noise and the elections. Now since then, even in January, we have already seen a fall in rates from the levels of December, and the same for regular inflation. Going forward for this year.
Then you have the time decay because at the end, a significant part of the impact in 2021 was like the time to mark the mark to market of those positions. Just with the time passing, that value basically gets better because there is less time before maturity. For 2022, we don't expect, let's say, a negative impact coming from OCI and should be from neutral to positive. How positive will depend on the evolution of rates and on how the markets evolve. We shouldn't have the same situation we had in 2021, considering the ending point of last year.
Well, amazing. Super clear. Congrats on the 28% ROE, guys. Thank you.
Thank you.
Thank you very much. Our next question comes from Santiago Alba from Credicorp Capital. Please go ahead. The line is open.
Hi. Can you hear me?
Yeah.
Yes, please go ahead.
Okay. I enter a little late to the call. I don't know if this answer was already, like, answered. The question is why the bank prefers to maintain a conservative approach in terms of provision expenses when asset quality indicators remain, like, under control. If you are observing some difficulties in the payment of some clients that is still not reflected in the asset quality indicators, later also considering our robust coverage ratio of 270%. Bob?
Okay. Yeah. Just basically in Chile, in Chilean GAAP, we've done additional provisions in basically every quarter through Q4 . As we said in Chilean credit risk, banks, you know, don't follow IFRS 9, and the additional provisions are pretty much at the discretion of the board. Our board, obviously supported with management's views, is that there are still risks in the economy coming from the pandemic, basically. Okay? In fact, now we're in the Omicron crisis. It hasn't been so bad, even our contagion levels are going through the roof.
The fact is that the board, at least through the end of last year, felt it prudent to continue saving, adding voluntary provisions for a rainy day. In our guidance for this year, we don't expect to add on any more voluntary provisions, but we're not expecting to reverse them. And with the idea there that those are for exceptional events in terms of credit risk. We don't see any. We don't have any pending issues on the corporate side or any clients. In fact, the opposite. 2021, we saw quite evolution of asset quality across the board. It is also true that eventually kind of these usage of pension fund monies, of direct government transfers will be drying up.
There's still a lot of liquidity in households today, but that will eventually dry up. That is why in our cost of risk last year, excluding voluntary provisions, was like 0.8%. This year, our cost of risk, the forecast we have in the guidance is 0.9%-1%. That's kind of a jump that reflects some deterioration in asset quality on the margin, just because it's impossible to keep these levels that we saw last year, once again, excluding voluntary provisions. Going forward, I think the coverage ratio will remain high. It could come down a bit, and the cost of risk on a comparable basis without voluntary provisions should go from the 0.8% last year to 0.9%-1%.
That range will depend on how good the economy is. If some unexpected tail event happen, as we've seen in the last 10- years, we've seen pandemics, we've seen riots, we've seen earthquakes. We have those provisions in the balance sheet to absorb those. Okay?
Okay. Thank you very much for answering my question.
Thank you very much. We have also detected a question from the line of Citibank analyst team from São Paulo. We'll just open the line in case there is a question there. Please go ahead, sir, ma'am, with your question. Okay, we'll just come back to this line. It looks like it's muted. In the meantime, we'll go back to the text questions. We acknowledge Florencia Stefani's question about interchange fees regulation. We believe that was already answered. If you have a follow-up question, please raise your hand and we'll open your line. The next question is about main risks to inflation in 2022. Do you believe it could persist at the level above 2021 inflation? What is your impact on NIM and ROE for every 10 basis point increase in inflation?
Okay. Thank you, Michael. I think that the sensitivities were already mentioned by Robert. Regarding the risk, I think that the. In general, these are all inflation pressures across the board, I mean, worldwide. I mean, all the supply chain disruption and all that. It's unlikely our forecast, our expectation shows that we are expecting inflation to be above the target from central bank, but not as high as it was in 2021. Our base case scenario is to have that slight reduction in inflation trending to the central bank target. The risks, I think, they are coming more from abroad and from all these international inflation pressures.
I don't see many internal risk of inflation going up. Definitely if any of those upwards risk appears, especially the ones that are coming from the domestic situations, the central bank, I think, will be even more aggressive in hiking rates, and that could, like, counterbalance the positive coming from inflation.
Okay, thank you very much. Question about normalized ROE. What is normalized ROE in net income growth for the group?
Bob?
Yeah. We believe that if we return to a situation where we have GDP growing 2.5%-3%, like, on a normalized basis, with inflation going back to 3% and the central bank rates more or less at 3%-3.5%, a neutral rate. As we said before, the ROE, our IE guidance is around 17%-19%, and therefore we think that the net income growth should be pretty much in line, given that we're probably paying a payout of 50%-60%.
If we're able to keep those ROEs more or less in that range, net income growth should be similar to loan growth, which for Chile, if Chile is growing, you know, 2%-3% real GDP, nominal loan growth should be roughly around 6%-7%, and that should give you kind of like the normalized net income growth. What could drive this upward? Basically what could be at the higher range of the ROE or driving this upward is obviously a continued success in our digital strategy. Okay? I think that's could pull up our forecast of normalized ROE and net income versus what I just stated. What could pull it down really is the political, economic environment and maybe some type of regulations that are always out there. Okay.
Okay, thank you very much. The final text question. How do you think the pension withdrawals affected consumer loan demand, and how does their absence affect your forecasts? Thank you.
I mean, definitely the withdrawals affected the consumer loans demand to the downside in a significant way. I mean, there was a lot of liquidity in people's accounts and pockets. That made them demand less credit. The situation is still similar to that. I mean, there is still a lot of liquidity around, so that's why we are not expecting a rebound in consumer loans demand in the first half of the year, Q1 and Q2 .
In the loan growth expectations that Robert was mentioning, between 6%-8%, we are already factoring in that situation begins to revert by the end of the year and so people start to consume and to use the liquidity they have, and they start to demand more credit. That's why we also think that the loan growth in terms of the mix could be, like, positive to NIM because from the starting point we see maybe consumer loans growing in the upper part of that 6%-8% range, and that would contribute to the mix and to support NIM. Definitely withdrawals were a significant pressure and won't be there going forward, and that should support consumer loans demand and growth.
Thank you very much. I am seeing no further questions at this point. Perhaps I'll pass the line back to the management team for your concluding remarks.
Okay. Thank you, Michael. Thank you all very much for taking the time to participate in today's call. We look forward to speaking with you soon.
Thank you very much. This concludes today's call. We'll now be closing all the lines. Have a great day.