I think we're okay now. Okay. Sorry for that. Good morning, everyone. Welcome to Banco Santander-Chile's third quarter 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 Claudio Soto, Chief Economist from our research team. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy. Yet again, the bank has achieved top results with a strong ROE and solid financial performance, thanks to the success of our digital strategy and other initiatives. Before we get into our results, Claudio will start with an update on the economy and macro scenario beginning on slide 4.
Thank you, Emiliano. Since our last call, sanitary conditions in Chile have improved substantially. Despite the recent surge in daily COVID cases due to the Delta variant, new infections remain relatively low, and the mortality rate has receded. That has occurred in a context where more than 75% of the population have received the full immunization program and 25% have got the booster. As a result, the state of emergency that ended in September has not been renewed, and most of the sanitary restrictions have been lifted. The economy has surpassed its pre-pandemic level and has reached its potential, although with some heterogeneity across sectors. Growth has been led by consumption, pushed by government cash transfers and pension fund withdrawals. Investment has also recovered, but has not yet reached its trend. Employment continues subdued, with a labor force that is still substantially below its pre-pandemic level.
Going forward, we should see further progress in employment as the sanitary condition allow people to resume their participation in the labor market. Overall, we have revised upward our growth estimate for the year from 8% to 11%. In 2022, growth will moderate to a range between 1% and 2% as the fiscal impulse fades away and base effects kick in. Inflation has accelerated in response to external cost-push shocks and one-off hikes in prices of certain services. For the next few months, we should see further increases in inflation due to a buoyant demand, a depreciated currency, and higher fuel prices. We forecast CPI inflation will close the year at 6.3%, and next year will end up between 4% and 5%, converging to the 3% target in 2023.
The central bank has accelerated the reduction of its monetary impulse by increasing the monetary policy rate twice since our last call, one by 75 basis points and the other by 125 basis points. Thus, the monetary policy rate has reached 2.75%, significantly above our initial estimate. For the last monetary policy meeting of the year in December, we expect the central bank will increase the monetary policy rate by another 75 basis points, so that it reaches its neutral level by the end of the year. During next year, the monetary policy rate may rise further, but the central bank will graduate the size of future monetary tightening according to the evolution of domestic demand.
Medium and long-term interest rates have also increased substantially, not only in response to the expected tighter monetary policy, but also because of the possibility of a fourth pension fund withdrawal and the uncertainty regarding the political process in Chile. In this context, the peso has depreciated despite favorable copper prices. The government has begun the legislative procedure for the 2022 budget. It considers a significant reduction in expenditures, -22.5%, to reach a public deficit of 2.8%. With this, gross public debt will remain below 40% by the end of next year. The political situation in the country is challenging. In a few weeks, there will be presidential and parliamentary elections. The results of the presidential election are still wide open, and government program of some candidates have been mutating in recent weeks.
In parallel, the constitutional convention has approved its internal regulation, ratifying the two-thirds requirement to approve any article. This month, they have begun writing the content of the constitutional text, which should be finished by June 2022.
Thank you, Claudio. We will now move on to explain our strong balance sheet and results. Moving on to slide 8. In the third quarter, our net operating income increased 1.2% QOQ, and 33.7% year-over-year basis. Quarterly net income in third quarter totaled CLP 176 billion, an increase of 68% compared to the same quarter of last year. Compared to the second quarter, net income decreased 5%, mainly due to higher other operating expenses. Net operating income, on the other hand, increased 1.2% QOQ. Year-to-date net income increased 63%, with our ROE increasing from 12.5% as of September 2020 to 21.1% for September 2021. Strong client growth, higher net interest income, a strong growth of fee income, improvements in asset quality, and cost control drove these results.
On slide 9, 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, 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 10. Despite asset growth being focused on lower yielding and less risky assets, we still managed to obtain a 13.9% year-over-year increase in NII, with a strong NIM of 4.1% in the quarter. UF inflation in the quarter reached 1.3%. This has triggered the central bank to increase the monetary policy rate, as was mentioned by Claudio previously.
Consequently, our cost of funds has started to rise, and this lowered our NIMs by 10 basis points QOQ. This was compensated in part by the acceleration of loan growth in the quarter. Going forward, we expect the monetary policy rate to continue to increase, which should put downward pressure on our NIMs. On the other hand, and especially in the fourth quarter, UF inflation should continue to accelerate, reaching levels greater than 2% for the next quarter. For this reason, NIMs in 4Q should rebound from current levels, and we forecast a NIM level of around 4.2% for the full year 2021. As we can observe on Slide 11, total deposits grew 16.2% year-over-year and 1.3% QOQ.
In previous quarters, we had seen a strong increase in non-interest-bearing demand deposits, leading to a 24.9% year-over-year increase. Time deposit growth accelerated in the quarter, growing 6.2% compared to June, with the increase in interest rates making this product more attractive. However, as we can see on slide 12, the interest rate we're paying on this product remains well below that of our peers and far below that of the monetary policy rate, demonstrating our successful management of our cost of funds. Also on this slide, we show on the right-hand side, that while there has been a slowdown of demand deposits from our larger commercial clients, growth of retail demand deposits remains solid in the quarter. On slide 13, we review loan growth.
Total loans increased 3.1% QOQ and 2.5% year-over-year. Loan growth among large corporates started accelerating in the quarter as 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 2.7% QOQ, driven by the acceleration of economic activity in the quarter. Translation gains from the depreciation of the peso and UF also added to loan growth. Loans to individuals increased 2.6% QOQ and 7.4% year-over-year, driven by mortgage loans that continued to grow solidly at 3% QOQ. Loans from our auto lending subsidiary increased 17.5% as auto sales in Chile have shot upward.
In previous quarters, the SME loan book had seen strong growth due to the FOGAPE and FOGAPE Reactiva programs. In the third quarter, demand for this product continued to decelerate, leading to a contraction of lending to SMEs. As of September 2021, the bank had disbursed CLP 892 billion to the FOGAPE Reactiva program, while the total FOGAPE loan book reached CLP 2.4 trillion. Regarding grace periods, payment holidays, in general, 99.5% of these grace periods are over, and only 0.4% of all loans that previously had a grace period or payment holiday are impaired. Moving on to asset quality on slide 14. In this slide, we can see how the evolution of asset quality remains solid.
The NPL and impaired loan ratio continue to show positive trends after the expiration of payment holidays. The coverage ratio of NPLs remained high at 259%. The NPL and impaired loan ratio decreased to 4.7% and 1.2%, respectively. These positive trends were seen across the different products as well. As we can see on Slide 15, these positive asset quality indicators led to a cost of credit of only 1.1% in the quarter. On Slide 16, we take a quick look at noninterest income trends. Fee income had an outstanding quarter, increasing 12% QOQ and almost 20% year-over-year. Reflecting the fruits of our digital strategy and strong results from corporate banking. Fee growth was driven by the strong opening of checking accounts thanks to the popularity of our Life and Superdigital product offerings.
Card fees increased 35% year-over-year due to greater card usage, while insurance brokerage also grew through our digital platforms. Furthermore, Getnet, our acquiring business that we launched in the first quarter of this year, has already contributed more than CLP 3 billion in fees since its launch. Total income from financial transactions decreased 17% QOQ. Client treasury activities continued to perform solidly, growing 5.8% QOQ and 17% year-over-year. This was offset by a loss in non-client treasury income due to the execution of various liability management operations to improve NIMs going forward that resulted in initial loss, mainly arising from the unwinding of interest rate hedges. Sorry. The rebound in revenues in the quarter was also accompanied by good cost control, as shown on slide 17.
Operating expenses decreased 1.4% year-over-year, despite higher inflation in the quarter. The year-over-year growth of administrative expenses is due to costs associated to the launch of Getnet and the advance of our digital initiatives in line with our CLP 250 million investment plan for the years 2021, 2023. The depreciation of the peso and the rise in inflation has also negatively impacted our expenses. Despite this, the bank's efficiency ratio reached an impressive 37.7% year-to-date. Regarding capital ratios on slide 18, the bank finished the quarter with a core capital ratio of 9.6% and a total BIS ratio of 14.2%. At the same time, in October, the bank became the first Chilean bank to issue an AT1 perpetual bond under the new Basel III regulations.
The issuance was for $700 million, and with this, AT1 instrument in October, our tier one ratio will increase by 1.6 percentage points. With our current profitability, we estimate a payout of 50%-60% of 2021 earnings to be paid out in 2022. Do not rule out that we could pay this dividend in two tranches next year. With the current share price and the forecast for loan growth and ROE, this would signify a current dividend yield of between 5%-6% for the bank shares. On slide 19, we can see the requirement of the transition to Basel III year by year. The phase-in of Basel III has commenced, and will be fully in place by December 2025.
The inclusion of market and operational risk-weighted assets will begin in December of this year. By the end of this year, we expect the minimum core capital ratio required for us will be 8.6%, including an additional buffer set by our board, with a total BIS ratio requirement of 12.8%. In the final portion of this presentation, starting on slide 20, we will give an update on our most significant strategic and business initiatives. Moving on to slide 21, during the quarter, our key digital initiatives continued to advance with great success. This has led to important improvements in profitability, client growth, and satisfaction. On slide 22, we show how Santander Life and Superdigital are still our heavy-duty products in bringing in new clients to the bank.
Total Life clients increased 126% year-over-year, and in 3Q 2021, Life opened over 90,000 new checking accounts, reaching a total of 822,000 clients. Life clients also generated through September 2021, CLP 49 billion in revenue, which shows how this product line not only has a high growth rate, but also a rapid monetization. Superdigital saw record client growth in the quarter, helped by alliances with companies such as Cornershop and Uber as a way of attracting new clients. At the end of September 2021, we reached 215,000, a 95% year-over-year increase. Further good news came from Getnet, our new acquiring business, as shown on slide 23.
Getnet was officially launched in February, and it has already sold over 40,000 POS, and we sold 19,000 just in the third quarter. An important fact to highlight is that 93% of the clients that are in Getnet are SMEs, our target clients. In just eight months, Getnet already has a market share greater than 15% in POSs. Our NPS score for this product is also strong at 74 points, helping to improve the overall NPS score of the SME segment. This product has been quick to monetize, with already CLP 3 billion generated in fees since its launch. On slide 24, we show how our digital insurance brokerage platforms also had a positive quarter.
Klare continued to expand its product offer with 28,000 insurance policies sold in the third quarter. Coming soon, a new insurance product for cyclists. Autocompra also shined in the quarter. The sale of auto insurance policies to this platform increased 32% year-over-year. On slide 25, we show how the bank continues its process of transforming its branch network, focusing on the Work Café model, and closing less productive branches that have low client flow. The Work Café are beginning to reopen, and we recently opened a new Work Café in Puerto Natales, Patagonia. Another 8 Work Cafés are set to open during the rest of 2021.
With this change in our branch format, coupled with our other digital initiatives, our productivity continues to rise, with volumes per branch increasing 16.6% year-over-year, and volumes per employee rising 16.7% in the same period. On slide 26, we show the tangible results of our initiatives through the record amount of current account openings. Compared to our peers with the latest information available from the CMF, Santander has opened 630,000 net current accounts, compared to only 403,000 accounts in the whole system combined without us. With this, we have been able to increase our market share by almost 7 percentage points in twelve months from 22% to 29%. We also show how this improvement in our digital offer is pushing upward our net promoter score.
The graph on this slide demonstrates how the bank's NPS has improved during the pandemic, as our clients have found high value in our digital product offering. We have overtaken our peers, are now solidly established as number 1 for NPS in Chile, with high points as well in product quality, contact center, and our webpage. On slide 27, we show how these efforts are translating into record client growth. With the introduction of digital products coupled with higher NPS scores, in a span of few months, we quickly surpassed the 4 million client mark. On slide 28, we show that the year-over-year growth of clients has been driven across the board, with total clients growing 14% year-over-year, digital clients increasing 39%, and total clients with a current account increasing 45% year-over-year.
On slide 29, we get into some of our recent developments in the ESG world. Vigeo just finished its annual review of the bank with a rating that puts us in the advanced category with 62 points. Evolving from the last time we were overviewed by Vigeo, where we were qualified as robust. We have moved from robust to advanced. This is important because today, according to Vigeo's analysis and scoring system, we are number 3 among all EM retail banks.
Regarding the ESG topics as well on slide 30, we would like to remind you that you're all invited to our next ESG talk taking place on Tuesday, November 16, at 8:50 A.M. New York time, where top management, including the CEO and the President of the bank, together with other members of the board and management, will present the fascinating updates we have made in these themes and what is to come ahead. There will also be a live Q&A session. We hope to see you there virtually and make sure to sign up. To conclude on the next slide, we update our guidance for 2021. The positive results achieved these last 3 quarters permits us to be more optimistic than we were previously, and we have again revised upward our outlook for this year.
As inflation and loan growth continue to gain momentum, we expect to finish 2021 with a NIM of 4.2%, up from 4.1% expected previously. Cost of credit should remain in the range of 1%-1.1%. We are increasing fee growth to greater than 15% for this year based on the strong client trends already mentioned. Cost growth should remain below inflation and efficiency between 37% and 38% is what we are now forecasting. Taking all of this into account, we are revising our guidance for ROE upwards to 21% for 2021. At this time, we gladly will answer any questions you may have. Thank you.
Thank you very much for the presentation. We will now be entering the Q&A part of the call. If you are dialed in via the telephone, please press star two on your keypad. That's star two on your keypad, 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'll now give a moment or so for the questions to come in. Thank you. Our first question comes from Mr. Marlon Medina from JPMorgan. Please go ahead, sir. Your line is open. Okay, we'll go to the next question. Next question is from Mr. Carlos Gomez-Lopez from HSBC. Please go ahead, sir. Your line is open.
Hi, good morning, and congratulations on the results. A couple of simple questions. The first one is, at this point in time, and given your experience, you had
A cost of risk of about 1.1% in the last few quarters. Where do you think that with your current business mix is your normal cost of credit? When do we get there? Is that a 2022 event, or does it come later? Second, again, I understand it's difficult to project now, what do you think your loan growth is going to be for the next 2 or 3 years? Thank you.
Okay. Hi, Carlos. Thank you. Regarding the cost of credit, obviously, you've seen our asset quality has done very well. Our coverage is quite high. Now we do expect, you know, more loan growth to slowly flow in. So we think that a normalized cost of credit, without, you know, considering any type of movements on additional provisions, okay? We would like to keep that stock of voluntary provisions there for any large unexpected event in the future. So our normalized cost of credit would probably be around 1%. Regarding loan growth. Remember last year, we had a rather high loan growth during the pandemic, given the different programs, especially SMEs.
This year, since there's been a really high level of liquidity in companies and in households. Households have gotten a lot of money from pension funds, from direct subsidies from the government, so that had kept loan growth subdued. As these programs come to an end, we think that loan growth should slowly recover, okay? As we said in the last call, and as you saw in the third quarter, loan growth should finish the year, you know, around 3% or 4% for the full year. Going forward, I think slowly as the pandemic ends and we enter kind of like a normal economic cycle, loan growth should return to the normal multiplier levels.
In general, in Chile, if GDP loans to GDP grow around 1.5 times in real terms, and then if you add on inflation, you more or less get the nominal rate we're expecting the next 2-3 years. If the economy grows, you know, 2% or 3%, we should be getting roughly around, you know, 6.5%-7% nominal loan growth in normal years. Okay?
Very clear. Thank you so much.
Thank you very much. We will just try once again to open Marlon Medina's line from JPMorgan. Marlon, your line is once again open. Please go ahead. Please make sure your phone is unmuted. Okay. We'll come back to that one shortly again. Next question is from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir.
Hi. Good morning, Emiliano, Claudio, and Robert, and all your team. Thanks for your presentation and the opportunity. My first question is on the political landscape. Do you think that the voting on the fourth pension withdrawal could be delayed after the elections? And can you provide who are the candidates leading the polls on the presidential elections? My second question is on your expectations for the net interest income in NIMs next quarter and next year. Considering your expectations on interest rates for the rest of the year and next year, and also the ones for inflation, where do you see the NIM pressure next year? When do you see them recovering after the repricing of the loan book?
Is this something that we can see maybe at the end of 2022, or it should be likely more in 2023? My third question is on your mid-term ROE expectations. Considering that 21% this year, well above the pre-pandemic levels, and that you will continue to see high dividend payments, don't you think that the 2022, 2023 ROE should be more around the 19%-20%? Thank you.
Claudio, can you take the first one, please?
Yes, sure. Can you hear me? Yes.
Yes.
Okay. Regarding the first question, whether the fourth pension fund withdrawal could be voted after the election is not yet clear. Today, in a while, we will know the schedule of the Senate for next week. At that moment, we will know whether it has been put on schedule to be voted next week. If that doesn't occur, there are high chances that it will be voted after the first round. Given that, the chances that it will not be approved are higher. Candidates leading polls currently are to the left, Gabriel Boric, and then on the center right, it's Kast. In some polls, Kast appears as the first one. In other polls, he appears second to Gabriel Boric.
Yasna Provoste, the candidate from the Christian Democratic Party, is currently in third place in most of the polls.
Regarding your questions about NIM, as you mentioned, the two main factors are inflation and also the short-term interest rates going up.
This last quarter for this year, as Robert mentioned, we are expecting, like, the quarterly NIM to be maybe between 4.5%-4.6%. I mean, considering the level of inflation we'll have in the quarter, and that will take the full year NIM around 4.2%. First quarter next year should be, let's say, similar considering the inflation expectations we are expecting for the first quarter. It's also true that the interest rate will keep going up. The central bank we expect them to hike another 75 basis points in December. Considering all that, we do expect next year NIM to be lower than this year. I mean, around, like, 4%.
I mean, if inflation doesn't stay around 4.5%-5%, but we can get slightly below that, 4% for the full year. We do expect by 2023 to have the repricing on the asset side showing up and also being able to again build a NIM from 4% to the upwards trajectory starting in 2023. Regarding our ROE expectations, it connects a lot with the NIM issue. I mean, we still see our long-term ROE range from 17%-19%.
If next year because of the inflation scenario, we are able to sustain NIMs above 4%, it's, let's say, reasonable to have a slightly higher expectation to be in the upper part of that range, as you mentioned, but it's going to be mainly related to what's happening on the NII front.
Super helpful, Claudio and Emiliano. Just last question on the digital landscape. We have been following all your digital initiatives, and we have been recently seeing that Getnet in Brazil was listed. Are you exploring something similar to happen in Chile? On the other hand, we have seen that BCI is exploring to launch a digital bank. Is it in your plans to do something similar, or do you expect to keep the digital transformation within the traditional bank? I'm just saying this because investors tend to give different valuations to payment companies and to digital banks.
Yeah. I mean, regarding Getnet, as you saw, I mean, the numbers are quite impressive. We are really happy with the speed we have gotten in that business. There is no discussion yet regarding ownership or listing. We are just focused on growing and growing fast and gaining market share. I mean, taking advantage of being the first mover, you can say, in entering that market after Transbank. Our main priority there is to keep growing fast and gaining market share. In the future, if there is any discussion regarding ownership or listing, we will discuss it with you, but they are not present at this moment.
The digital?
Okay.
Okay. Yeah. Basically, you're all familiar with our digital initiatives. Obviously, I think they've all been very successful. Santander Life is clearly the key here. Santander Life is slowly transforming itself into our digital bank inside the bank. Basically, today, Santander Life has been very much focused on the middle income segment. It's growing very strongly. I think a really key thing about Santander Life, unlike a lot of other digital banks that are just beginning, it has rapidly monetized. As we said before, already through September, Santander Life is generating income of almost CLP 50 billion, okay?
Santander Life, unlike a lot of these other digital platforms in Chile, digital debit cards already has checking accounts balances probably above $500 million, okay? Which is probably all the other digital debit cards in Chile, including Superdigital combined, okay? Life also has a loan portfolio, which hasn't been very aggressive, but it surely should slowly start to grow more and more. Life is gonna be launching new products, okay? Basically, Life inside the bank is gonna be expanding, and it's slowly transforming into our digital bank. But until now, it's not gonna be a separate entity, okay? It's gonna be inside the bank, very much integrated with the rest, but clearly taking over different products and segments. Okay?
Perfect. Thank you very much, Emiliano and Robert.
Thank you.
Thank you very much. Our next question comes from Mr. Juan Recalde from Scotiabank. Please go ahead, sir.
Hi. Thank you for taking my question. My first question is related to Getnet. I think that the fees generated by this business were around CLP 2 billion in this quarter. The growth was pretty significant. My question is, what do you think could be a more normalized level of fees for Getnet? Should we expect this CLP 2 billion to continue, or it will be much higher? What do you think about that? The second question related to the expenses. Expenses look under control, but I saw that the other operating expenses were up around 76% quarter-on-quarter. You mentioned in the release that the drivers were provisions for non-credit contingencies and also insurance related to cybersecurity, related to Santander Life.
I was wondering whether the amount of other operating expenses that we saw in this quarter is gonna stay at similar levels. Also if you can quantify what part of those other operating expenses are related to provisions of non-credit contingencies and what parts are related to insurance, cybersecurity insurance.
Okay. Thank you for your question. I mean, regarding Getnet, it's. We are in a fast growth phase of the business. I mean, we are growing fast in POS. Also consider that the economy is also in the opening phase, I mean, leaving lockdowns behind. I think that we will keep growing fast in that. It's not so easy to imagine what's the stable level of fee will be because as I said, we are targeting fast growth there.
You can expect fees from Getnet keep growing as we grow in the number of client POS and also the amount of sales that merchants are having in this opening phase of the economy. You can expect growth to stay there for a while. I think we still have some, let's say, quarters ahead before we can talk about a stabilization level of fees from Getnet.
Just to add on to what Emiliano said. I think in our digital talk last year, we mentioned that we're looking at around $20 million in fee income from Getnet. So I don't know what exchange rate we use, but let's say CLP 16 billion-CLP 20 billion, it would be more pesos, a normal level versus. So we see a lot of growth, and as you see in the figures, we're growing very quickly. Regarding your other question. The other operating expenses, there's a lot of things there. I'll explain that line. First of all, there are provisions for non-credit contingencies. So given that, there's still risk regarding the pandemic and other. You know, the pandemic is not only credit risk.
We set aside CLP 7 billion there. Okay? On top of that, remember last year. There was like a cybersecurity fraud law. Before, you know, we were very active in selling different kind of cybersecurity insurance for clients. A lot of that was prohibited or watered down. The bank has and the banks have to cover a lot, a larger percentage of that. We have an insurance policy for that, basically. The actual amounts of frauds have gone down, okay, per client. The kind of this insurance policy, the price goes up because the amount of clients are rising. On like a fraud per client basis on the actual number of frauds, it's coming down.
Since the client base is growing so strongly, it is adding on to that cost. It's kind of like an indirect cost because of the strong client growth. Okay? Then the other thing there, remember that we still own 25% of Transbank, okay? Even though we discontinued this in 2019, as a discontinued operations, given the losses Transbank has been recognizing, we decided to kind of like do a catch up and it recognized some of the losses Transbank has been accumulating. Okay? That was around CLP 3 billion. The good news is that Transbank's new fee schedule was approved, I think by the courts. The most likely thing is that Transbank's profitability should begin to turn around.
Finally, remember that auto lending is growing very strongly in Chile. Santander Consumer Finance, our subsidiary for auto loans, has had a very large increase in net income. Okay? Inside Santander Consumer's P&L, an important cost is what they pay the dealers. We have a very strong joint venture with one of Chile's largest car dealers, which is Salazar Israel. Okay? As their net interest income is rising, as their loan growth is rising, also what we pay to Salazar Israel for this joint venture is also rising, and that's there as well. Okay? But that is also included in consumer finance's P&L. Despite the increase in that cost, the earnings of Santander Consumer are growing very strongly. Those are the factors.
What do you expect going forward? I would say the Transbank thing shouldn't be repeated. The provisions for other contingencies around CLP 10 billion, which shouldn't be repeated. If we continue to grow strongly in auto loans and in client base, the rest should be recurring. Okay? It has other benefits in other lines, obviously.
All right. That's good. Thank you.
Thank you very much. Our next question comes from Mr. Yuri Fernandes from JPMorgan. Please go ahead, sir.
Hi, everybody. Thank you. I hope you are hearing me because we had issues in our end with connections.
Yes, we can hear you.
Hi. Hi, everybody. Good morning. I have a first question regarding the OCI, like your available-for-sale. The results, they were very good. When we look at the shareholders' equity, like equity decreased in the quarter, and I guess this is related to the sharp increase in interest rates in Chile, right? Like, we looked at the 10-year, it was a massive run. My question here is what should we expect here going forward? I saw that there were some reclassification from your available-for-sale portfolio to held-to-maturity. If you can explore this topic a little bit, I think that would be important for us, like what should happen in the same sequence. I had a second question regarding payments.
Just some follow-ups, like in regarding Transbank, if you have any update regarding the sale, and regarding interchange fee caps, any updates on that topic? Thank you.
Hello, Yuri. Thank you for your question. I mean, regarding OCI, as you mentioned, I mean, the main driver of that has been the sharp increase in interest rate affecting the valuation of our ALCO portfolio. We actively manage our interest rate risk and mainly because of that, we were able to sustain our NIMs above 4%, I mean, significantly higher than our peers during this last 12-18 months when the cycle was one with rates very low and going down. Now the cycle changed and changed quite dramatically in the timing. I mean, it was a very, very fast change with the central bank increasing the rates.
I think that's part of the monetary, I would say the typical monetary cycle, because also inflation is going up, and that's a positive for us. But maybe the different component this time has been the pension funds withdrawals that basically forced pension funds to dispose of all kinds of assets, including domestic bonds. That put a high pressure on rates and affected the value of our ALCO portfolio. Going forward, definitely, to project the potential further increase in long-term rates, it's difficult to see increases similar to the ones we have seen so far.
I mean, because when you compare Chilean rates to other Latin American countries and other EM countries, we are already, let's say, similar to countries with a much higher level of inflation and much higher level of risk. I personally think that there's not much room yet to have rates going up. Also it's true that in the short run there could be some temporary volatility coming from the pension funds withdrawals. I mean, the fourth withdrawal is still to be decided. The interest rates were, I don't know, 40, 50 basis points higher a few weeks ago. They went down because now you can argue that the market is pricing a not so certain probability of the fourth withdrawal to be approved.
If it's not finally approved, I think we can expect interest rates to go down a bit. Let's say, summing all that up, going forward, that number will definitely tend to zero because the time will pass on the. At the end, you can see that as a kind of opportunity cost that even though we don't see that as any potential real loss, but it's showing that today we could buy those assets at higher yields.
That time value of money will be decreasing when time passes, and that negative number will be going to zero, basically having a positive OCI for the coming years. Regarding the classification, as you saw in our numbers, there's a part of the portfolio that is roughly 25-30% of the portfolio that it's basically being used to fulfill the reserve requirement, the technical reserve requirement, that it's a liquidity requirement that every bank has when your demand deposits exceed 2.5 times your total equity, including Tier 2. In our case, considering how fast how high we grew in demand deposits, we are having a, let's say, strong requirement of that case.
We need to fulfill that by having sovereign bonds. We need collateral for the central bank facilities that were implemented last year to provide liquidity to the system as part of the COVID compensating measures. That part of the portfolio that is definitely held to maturity because we don't have an option either to take the collateral out of the central bank, neither to not fulfill the technical reserve requirements. We are holding them to maturity, and basically what we did was to reflect that new business model into the accounting treatment of that part of the portfolio, basically changing those assets from available for sale to held to maturity. That's what you saw on our financials. Regarding payments, Pablo? Yeah.
We have no update on the sale of Transbank. What we did do is we updated kind of like the valuation in the P&L. We don't have any backlog in the sense of like, you know, we were fully reflecting Transbank's book value in our books. We own 25% of that, but there's no other further update on the sale there. Regarding interchange fees, well, as you know, the law was passed that governs, they're gonna fix interchange fees. The commission is working. They already started publishing how some of the what they're looking at, their methodology, but there is nothing yet that.
They haven't stated anything yet regarding where actually interchange fees will end up. I think by March or February, we should have more clarity. They're working 100% on that, so it's coming for sure by February or March. Probably in the next call we might have a more clear update. Clearly that will have an impact on card fees next year, right? We don't know how much yet. The good news is that people are using their cards more intensively. Clients is growing. In the long term, the fixing of interchange fees will probably, one, permit, you know, acquirers. It'll be better numbers for acquirers, like Getnet. Two, it'll probably therefore permit the acquiring business and the usage of cards to expand even further.
Okay?
No, no, super clear. You can use the acquirer as a natural hedge, right? Like a higher-
Yeah.
[uncertain] for the acquirers.
Yeah. Net, net you lose in the beginning.
Perfect.
Okay, in the long term, it should let the market expand more.
No, super clear. Thank you very much, guys.
Thank you. Our next question comes from Mr. Alonso García from Credit Suisse. Please go ahead, sir.
Thank you. Good morning, everyone. Thank you for taking my question. Most of my questions have been answered, but just wanted to check with you if there is any regulatory changes that you are aware of, either at the CMF level or at the Congress or at the Constitutional Assembly that will affect the banking system. My second question would be regarding the higher interest rates now in Chile. I mean, so far we have seen mortgages continue to grow nicely. Just wanted to hear from you that the margin, if you are seeing slower demand on that product given the higher rate scenario going forward. Thank you.
Great. Claudio, can you comment on regulatory agenda?
Yes. Well, the main initiatives in Congress right now, one is the Fintech Law that is at the very early stages, that includes also the regulation of open banking. Then there is a law that was introduced in Congress that puts another cap to the TMC. The cap on the, you know, the maximum rate you can charge on credit. The law makes some adjustment so that it might be cut even further. Those two initiatives are at the very early stages in Congress, and there are many initiatives in Congress that begin its procedure, but then after a while, they do not continue.
There were many initiatives in Congress that were related to the pandemic that were attached to the declaration of state of emergency. Since the state of emergency was not renewed, those initiatives are now not on the table.
Okay, thank you. Sorry, one thing, and Claudio, regarding the constitutional convention or anything?
Oh, yeah.
If there's any other.
Yeah.
Um.
Well, regarding the constitutional convention, as I mentioned at the beginning, they began writing the text just a few weeks ago, so we are again very at a very early stage yet. We will have more insights by the first or second quarter of next year. Having said that, the constitutional convention will, you know, write down the blueprint of the Constitution, which is a very big you know set of rules. All the details have to be then defined in common law that will take place to occur.
Regarding your question about long-term interest rate on the mortgage market, I mean, definitely the mortgage market is being affected by two main factors. First, interest rates significantly higher, I mean, 300-400 basis points higher than a few months ago. Because of this new environment, many banks, including us, reduce the maximum tenor you can ask a mortgage, I mean, from 30 to around 20 years. Basically those two factors are, say, making the payments, where the monthly payments go up by 30, 40, even 50%, depending on the segments and on the tenors.
That is definitely putting pressure on people in the total amount of money they can borrow, in order to keep a reasonable relationship between the monthly payment and their salary or their income. Definitely if we don't see a normalization, I would say a reduction in long-term interest rate. I think it's going to be very difficult to keep this double-digit growth in mortgages and that growth will slow down and will, let's say, force people to collect a higher amount of money for their down payment in order to get into the house. At the end, that, let's say, will normalize, and you will see that shock to be diluted in time.
We are in the middle of that adjustment where you can expect loan growth from mortgages to slow down in this new rate environment.
Thank you, Emiliano. Just a follow-up on the first question. Regarding this proposal in Congress to reduce the interest rate cap further, I don't know if you could provide some more color on. Of course, I understand it's in a very early stage at this point, that not everything that gets to Congress gets approval. I mean, if you could comment on the likelihood that you see for it to be approved, who is supporting this law, if it has found further support in Congress or anything that could help us assess its likelihood of being approved or not eventually. Thank you.
I will touch on that. As I mentioned, it's at a very early stages in discussion. In the past, we have had initiatives like that more than once. Those initiatives just fade away or they do not transform into law. This initiative it was, you know, put to be discussed in Congress in the context of a more broad law in terms of consumption, consumer protection. I see that that has a to now low probabilities of going through. There are many issues in discussion in Congress right now, and this is not really at the top priority in the political agenda.
I think, as it happened in the past, I see that there are, up to now, low chances that this will effectively be transformed into law.
Building on Claudio's comments, I agree with his view, considering that also what we just commented on mortgages. I mean, there's that has resonated on the, let's say, political environment. In general, this sense that now people cannot access mortgages as easy as they were accessing them before. That's, I think it's, let's say people are kind of worried and putting a lower cap on interest rate would also affect credit supply more on the consumer side on loans.
I don't see that in this moment there is much room to keep, let's say, restricting or putting pressure on credit supplies because that could fight back because at the end, people need to borrow for their investment plans, for their future plans. I agree that today I don't see a high chance of that moving at least fast.
Very clear. Thank you for the answers.
Thank you very much. Our next question comes from Mr. Daniel Mora from Credicorp Capital. Please go ahead, sir.
Hi, good afternoon, and thank you for the presentation. I just have one short question. We observe that during the year, the large corporate segment has presented reversal of provisions. Can we expect further reversal of provisions in any other particular segment? Thank you so much.
Okay, yeah. Basically, this year, the large corporate segment has seen a reversal of provisions. Well, two things there. First of all, last year and these are when we present information by segment, remember any voluntary additional provisions, we don't assign to a segment. They have like a, they're assigned to a product, but in the segment P&L, they're not included, okay? Last year, during the pandemic, obviously we were worried about a lot of different segments of different companies, and we downgraded. We were very conservative in downgrading and set aside required provisions for the corporate segment, okay? This year, first of all, a lot of those worries didn't pan out, so some companies have improved their rating, and that has resulted in a reversal.
Second of all, remember, as we mentioned in the second quarter, I believe, we sold two or three of our largest impaired loans, which had a high provision. When you sell those loans, obviously you reverse the provision. Going forward, the large corporate segment today has a very good asset quality. Given that the economy is recovering, we don't expect a large charge of provisions coming out of the corporate. A large reversal, probably not either, because those are a reflection more of the selling of these loans. In other segments, no, I would say not a reversal because as the loan growth grows, remember here, every loan is born with a provision.
I wouldn't see any reversals in any of the other segments. Okay?
Thank you so much.
Okay, thank you very much. This question comes from Olavo Arthuzo from UBS. Please go ahead, sir.
Hi, Robert, Emiliano, Fernanda, thank you for taking my question. First, congratulations for the operational dynamic the bank is showing when compared to the other Latin American banks. My question is about the Getnet operation in Chile. I noticed that there are a lot of analysts that question about it, but I was just wondering if you could share with us some data related to the acquirers operation in Chile in terms of TPV market share and also point of sale. I mean, there are some figures on the press release, but in terms of market share, Robert, if I'm not wrong, mentioned that the market share in POS is 15% nowadays. Can you just please confirm this?
Did the market share in terms of TPV increase in comparison to the last quarter, and how much is it?
Okay. Yeah. There, Getnet has just started. In terms of POSs, our market share, I believe today is greater than 15%. We calculate in Chile, there's around 200 and-
300,000 before we entered the market.
Yeah.
There are active POS.
Yeah.
Today we are reaching like 50,000.
Yeah.
Yes, I mean, from 15%-20% market share in active POS.
In active POSs. Remember that around we have a lot of small SMEs. A lot of them didn't have a POS, so I think we're expanding the market more than getting people switching. Some of our clients have switched to our POS, but I think a majority are clients that didn't have a POS before. That's very good also from like a margin perspective. From a total purchase value, I would say today our market share is probably around 4 or 5%, but growing rapidly. Okay?
Yeah, because also it's important to mention that until last month, we weren't entering into the big merchants because Transbank still had their fees fixed and basically the big merchants were having a low fee that was not attractive to us, so we weren't entering that part of the market. Now that has changed because Transbank finally got the approval to review their fee schedule and so now we are entering into bigger merchants. Also, it's important to mention that until September, we didn't have our e-commerce solution still operating. Basically, it was all physical transactions. As you can imagine in this new post-COVID, being out of e-commerce was a big drag for us, and that is already part of the past.
I mean, we are also offering the e-commerce solution, and that will also help us to increase the market share and the amount of sales.
That was very helpful. My second question. I just wanted to know more about the brick-and-mortar branches of the bank, especially about the Work Café branches. Because, with this positive outlook for the number of combined branches, as you presented on slide 4, what is the strategy going forward on this physical channel of the bank? There are some intentions to open or optimize some administrative costs. If you could give guidance or give us a few metrics or numbers, it would help us a lot. Thank you.
Okay. Yeah. Basically, we're in this investment plan that has different branches. You could say different aspects to it, okay? We have the whole digital initiative, Life, Superdigital, Claro, et cetera, et cetera. Part of our strategy is also changing and renewing and modifying significantly the physical network, okay? We've always talked about a phygital strategy, okay? Our strategy is very much a mix between a strong digital and a strong physical network. But the physical network clearly evolving profoundly over the next few years. The key to that is our Work Café, all right? Today, we basically have, I would say, three types of branches. The traditional branch.
The traditional branch like you see in most countries, human tellers, back office, account managers, and people standing in line, okay? We have the Work Café branch, and then we have the Santander Select, which is the branches for the more mid-high-end. The mass wealthy, as you could call it. When you look at our figures, the focus of branch closures has been this Santander Select. We've closed most of them. Those are obviously a segment of clients that don't go to the branch, so you don't need to have all these branches. A lot of the people, in fact, that work at a Santander Select are shifting to the Work Café. The Work Café has the...
It's very efficient, okay? It's much more efficient than a traditional branch. It doesn't have human tellers. It doesn't have a significant back office. It doesn't have cash. Okay. The branch is fully dedicated to business, okay? Another thing is, in a traditional branch, you might have space for three or four relationship managers. In a Work Café, you have space for around 15-20, okay? In a similar space, you have four or five times more relationship managers, and you have a much nicer format where our Work Cafés are in something we call the Work Café community, which is basically a place where mid-market SMEs can go and do business, okay?
Where anyone can go and hang out, see, have a good coffee, use the internet, and do business. Okay. The idea basically in the end is to slowly reduce the traditional branch network format. In order to do that, you have to begin to be able to eliminate some transactions at the branch, okay? A lot of our branches, when you see a long line or something, it's usually non-clients going to get their check, get a cashier's check, getting paid their salary or paying a bill, okay? That is obviously partly because we're very strong in cash management. One way to get people out of the branches who are doing these low value-added services is for those people to be able to get their salaries online.
That's where Superdigital and Santander Life play a very important role. You know, for us to go to companies, sign alliances and say, "Okay, today you're paying workers. A lot of these workers don't have a checking account." And say, "Look, don't pay them anymore. Continue paying them through Santander's transactional service, but deposit them directly through Superdigital or Santander Life." Okay? And that way you remove people. Another thing is, as we mentioned last quarter, we signed an agreement with Servipag. Servipag has around 200 branches where people can go and cash a check, get paid, pay a bill, so we unclutter the branches. Okay?
The idea here is that we don't have a specific number how many branches we can reduce, but definitely the square footages will fall and the amount of branches which will be shifting away from this kind of like back office, old traditional style, will all be evolving to this more advanced format where basically you go to the branch to do business and not to do non-value-added services. Okay?
Robert, putting all together, do you expect the OPEX, especially the administrative expenses, to expand above or below the current expectations for the inflation rate of the next year?
In the end, if you look at our costs, you can see this is resulting. We've done a lot of investments, but you see that costs, despite the inflation, are at a low growth rate, okay. Our idea is to continue that trend, okay. Obviously, inflation, since two-thirds of our costs are indexed either to inflation or the exchange rate, the depreciation of the peso and the acceleration of inflation puts pressure. With the OPEX that we have, which has a very, I think, high return, a rapid return, and it has a very high productivity contribution, our goal in the next few years is to continue growing our cost at or slightly below inflation. Okay.
Okay. Those are very helpful. Thank you very much, Robert.
Okay. Thank you.
Thank you very much. Our final voice question, followed by a couple of text questions. This one is from Brian Flores from Citi. Please go ahead, sir.
Hi, thank you for the opportunity to ask a question. Just a quick follow-up on the politics side. Have you heard of any initiatives by any of the candidates you have mentioned? Sorry, can you hear me?
Yes.
Yes, yes. We can hear you. Go ahead.
Thank you. Just any initiatives on any of the candidates you mentioned, Boric and/or Kast, that could, you know, create certain uncertainty for international investors. It could be capital gains or it could be a particular raise in corporate tax rates. Anything on this that you have heard and that is relevant, on your point of view?
Mm-hmm.
Okay. Claudio?
Yes. Well, let me give you some context. This government, couple of months ago, introduced a bill to improve pensions. Attached to that bill, there was changes in the tax code, including capital gains taxes on stock transactions that currently are excluded from capital gains taxes. That bill already introduced them. Now the bill has not gone through further discussion right now. We are, you know, in the middle of political campaign, and we have the election right now, so it's very unlikely that that bill go further. Boric in his program has a very broad tax reform included. His program is changing.
He had a program until 2-3 weeks ago, but then he's, you know, producing a new program that is not yet there. In the original program, he has in order to increase revenues for the government at this broad.
Tax reform that includes lowering evasion basically, increasing taxes or closing certain loopholes, a tax on wealth that currently we don't have a tax on wealth. That is more like a personal tax. Also, increases in the corporate tax system. That is part of a much broader package in terms of the tax reform. The other leading candidate, José Antonio Kast, does not have tax hikes in his program. He rather has some cuts in taxes in his program. That is more or less what I have in mind. The specific things for the financial sector are not included in none of the programs.
Boric had initially in his program a revision of international treaties. His campaign is moving away from that proposal that was originally his program. I think now he's not supporting this idea of revising international treaties that could introduce noise again regarding international investment.
Very helpful. Thank you very much.
Thank you very much. We have a couple of text questions which I will now read out, perhaps starting with the first one regarding fixed income and bond markets. Should we expect to see you in the bond market next year, either for the AT1? If so, is the plan to have parent buy part of the deal? You are soon having an ESG day. What is the appetite for potential ESG-labeled bond?
So, regarding the last part, I mean, we are expecting to finish our ESG framework by the end of the year, maybe early next year. With that in place, definitely we will try to get as much as we can of our funding from the market in an ESG labeled format. For that, we think that it's important to have a robust and very formal framework in order to avoid any kind of risk greenwashing argument or so. That's why we have been working, and we will comment later, I mean, next month in our ESG talk, about that. I'm not sure if I-
Eighty-one?
Yeah. I mean, we did AT1 last week. I mean, the parent company participated 100% of that. That has been the policy in the group. With that, we reached our 1.5% of risk-weighted assets in AT1. We have covered the AT1 needs for the next few years. I mean, with risk-weighted assets growing, maybe in 2, 3 years, we can consider doing another transaction like that. For the time being, we'll be done with the AT1 issuances.
Okay, thank you very much. There's about 5 or 6 questions related to the mortgage segment. I will try to group them. The first one is, considering the hike on long-term rates, the mortgage loan growth, do you see the mortgage segment slowing down in 2022? How has it been behaving in October? The second one very, very related to this. How will the recent increase in interest rates affect the bank and the industry?
I mean, regarding mortgages, I wouldn't say that mortgages would fall, but definitely growth to slow down in October. We have already seen like 20% less of number of mortgages being sold or being signed. And with that, reduction in the new origination, growth would be slower. I don't know if it will reach a point where the outstanding will be falling. The new interest rate environment, I mean, the central bank hiking rates, higher inflation, it has opposing impact for banks. I mean, usually banks have this long inflation exposure and in the short run, high inflation is positive, but that usually comes with higher short-term interest rate.
That hits the NIM and especially in the short run because you have faster shorter tenor liabilities repricing and takes between 1-2 years to have the repricing on assets compensating the initial shock. So far, the impact for us has been like positive because the tightening cycle from the central bank has just begun and inflation fears have been quite high. That's why for next year, we can expect, let's say a lower level of NIMs because the central bank will keep hiking rates and inflation should be lower than this year.
Okay, thank you very much. Next one is related to the mortgages. We saw the bank and others introducing shorter terms for mortgages in recent weeks. When do you think the bank will consider reintroducing the 30-year mortgages, under what scenarios? In line with this, what are the related risks for the construction sector in the coming months, considering buyers potentially pulling out of transactions?
Yeah, I mean, I don't have a specific timing for that. I mean, the going back to 30 years will depend on how the market situation evolves in terms of level of rates and also access to capital market in the domestic market. As of now, we are staying at not longer than 20 years. I don't have a specific timing to define when to go back to 30 years if we finally do it, because it will depend on how the market evolves. From the construction market, we have seen that in general, the market is quite self-adjusting.
Basically, we can expect the number of new projects to slow down and in order to avoid creating an oversupply of square meters into the market. We don't have any specific concern regarding that. We think that the sector has gone through other situations like this for different reasons, and it has been able to adjust the supply of new project to the new environment.
Yeah, just adding on to what Emiliano said. During the pandemic, there wasn't very much construction. So today, the inventory or number of months before inventory would expire is very low. So there's not an oversupply there. In fact, we're on the opposite side of the cycle, very little inventory available.
Perfect. Thank you very much for all this time for questions. We are seeing no further questions at this point. I'll pass the line back to the team for the concluding remarks.
Thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon. Goodbye.
Thank you very much. This concludes today's call. We'll now be closing all the lines. Thank you, and have a good evening.