Ladies and gentlemen, thank you for standing by, and welcome to the Banco Santander Chile Q2 financial results conference call. Throughout today's recorded presentation, all participant lines will be on listen-only mode. The format of the call today will be a presentation by the management team, followed by a question-and-answer session. Without further ado, I would now like to pass the line to Mr. Emiliano Muratore, the CFO. Please go ahead, sir.
Good morning, everyone. Welcome to Banco Santander Chile's Q2 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. We have a lot of good news for you today. Claudio will start with an update on the economy and macro scenario beginning on slide four, with important upward revisions to our GDP forecast. This will be followed by a review of our record-high Q2 results and the amazing progress we are making in our digital strategy and other initiatives. Finally, we will close with more good news regarding our guidance. Now, I will hand the call over to Claudio.
Thank you, Emiliano. As we mentioned in the last quarter, Chile was going through a new wave of contagions in April. As we can see on slide four, there was another wave in June. During the third quarter, a substantial part of the Chilean population was in lockdown. By the end of July, almost 14 million Chileans had received at least one dose of the vaccine, and 12 million had received the full treatment against COVID, representing more than 60% of the total population. Consequently, we have seen a substantial reduction in positivity rates of PCR tests, and contagions have declined in recent weeks, leading to an opening of the economy and a fast decrease in the population under full lockdown. Chile has benefited from good external conditions. Our main trade partners are growing fast, and terms of trade have improved.
On slide five, we can see that the copper price has remained high, having increased almost 50% on average since December 2019. The improvement in sanitary condition is also helping the economy in the short run. With this, economic activity has also rebounded, growing 18% annually in June. However, employment continues to dip, with a decrease in the labor force participation rate despite an increase in job offerings. On slide six, we have our estimation for this year and 2022. We estimate GDP will grow between 7.5% and 8.5% this year, favored by the opening of the economy, good external conditions, and liquidity injections to households, to pension funds withdrawals, and cash transfers by the government. In 2022, growth will moderate as fiscal impulse fades away.
After robust inflation at the beginning of 2021, there was some slowdown due to muted food and services prices. Going forward, the strong dynamic of consumption will put some upward pressure on prices, and inflation should accelerate by the second part of the year, closing at around 3.9%. In July, the central bank began reducing its monetary impulse, decreasing the monetary policy rate from 0.5%- 0.75%. We expect them to continue this trend, with the MPR reaching 1.25% by the end of the year. Medium and long-term interest rates have also increased in response to a better outlook for growth this year, stock flow adjustments related to the third pension fund withdrawal in May, and fiscal pressures on the bonds market due to cash need by the government. Robert, you may continue.
On to explain our strong balance sheet and results. Moving on to slide eight. Quarterly net income in the second quarter of 2021 totaled CLP 185 billion, our highest-ever quarterly result, which increased 119% compared to the same quarter last year. It is important to point out that second quarter 2021 results include an additional provision of CLP 18 billion recognized to increase coverage ratios, considering the uncertainty still surrounding the potential impacts on credit quality of the COVID-19 crisis, especially maybe a future evolution of the Delta variant, which still hasn't arrived in Chile, but you never know. Strong client growth, higher net interest income, a rebound in fees, an improvement in asset quality, and cost control drove our results. The bank's return on equity reached 21.6% and surpassed 20% for the third consecutive quarter.
On slide nine, we can see how the bank has significantly outperformed our peers in net interest margin, efficiency, and ultimately, return on equity. This clearly shows that our results are not just due to a post-pandemic recovery, but also due to our efforts on many fronts. 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 13.1% increase in NII, with a strong net interest margin that reached 4.2%, driven by an improved cost of funding and a high inflation, UF inflation of 1.1 in 2Q21. For the second half of the year, we expect slightly lower NIMS than the levels reached in the first half, but still above 4%.
Going forward, we expect UF inflation for the next quarters of around 0.8%-0.9% per quarter. This will lower asset yields, but we also expect a decrease in the growth rate of non-interest-bearing liabilities, as current growth rates are difficult to sustain. The central bank has started to increase the monetary policy. As Claudio mentioned, we expect further increases, reaching 1.25% by year-end. Both of these effects should increase slightly funding costs. On the other hand, we are expecting the asset mix to begin to improve with greater loan growth. All in for the full year 2021, NIM should be around 4.1%. As we can see on slide 11, the bank outperformed the market in evolution of NII, NIMS, and NIM at risk, especially since the onset of the pandemic.
We generated CLP 520 million more NII than our main competitor in the last 12 months, reflecting not only our better balance sheet management, but also the strong growth of client deposits, especially checking accounts, and the improvement in our cost of funding. As of May 2021, we are generating a net interest margin 50 basis points higher than all of our competitors, and a NIM net of risk 20 basis points higher, including the recognition of even more voluntary provisions in 2021. As we can observe on slide 12, the growth of non-interest-bearing demand deposits has been a key force, growing 12.8% in the quarter and 42.8% year-over-year.
This was due to high growth of retail checking accounts, continued strength in the bank's transactional banking services for companies, the positive impact of the third withdrawal from pension funds, and the Emergency Family Income that more than 80% of Chilean households are now receiving. On slide 13, on the right-hand side, we show how this growth of demand deposits occurred across all segments, with demand deposits in retail banking leading the way and increasing 15% Q o Q and 52.5% year-over-year. With this growth, our market share in demand deposits reached 21.4%, placing us solidly in the number two spot in this product. On slide 14, we review loan growth. Total loans increased 0.5% Q o Q as loan growth remains subdued due to high liquidity levels at the corporate and household. Loan growth in the quarter was mainly driven by lending to individuals and SMEs.
Among SMEs, the main driver was the FOGAPE Reactiva program. In January, the government launched a second phase of FOGAPE, called FOGAPE Reactiva, with important differences compared to the initial program. Reactiva loans can be used to invest in new projects and not just for working capital. The average yearly rate for a FOGAPE Reactiva is approximately 8.4%, compared to 3.5% for the original FOGAPE program, and maturities can reach up to eight years. As of June 2021, the bank had disbursed CLP 731 billion in FOGAPE loans, while the total FOGAPE loan book reached CLP 2.4 trillion at the end of June. Loans to individuals increased 1.3% QoQ and 4.7% year-over-year. Residential mortgages increased 8.7% year-over-year and 2.3% QoQ. Consumer loans decreased 1.1% QoQ as high household liquidity has kept demand low for this product.
A bright spot in consumer lending in the quarter was our auto lending subsidiary, Santander Consumer Finance. Auto loans were up 29% year-on-year and 9.8% Q o Q. Profits from our auto lending business were up 200% year-over-year. Moving on to asset quality on slide 15. In this slide, we show the breakdown of asset quality by loan product. The NPL and impaired loan ratios continue to show positive trends after the expiration of payment holidays. The coverage ratio of NPLs remained at 252%. The NPL and impaired loan ratio decreased to 4.9% and 1.3%, respectively. These positive trends were seen across the different products as well.
Regarding the evolution of payment holidays on slide 16, as of June 2021, less than 1% of the total loan book was still under a payment holiday, and of the loans where the payment holiday has expired, 98% have resumed payment, and only 2% have shown some level of impairment. Of the FOGAPE loan book, including the Reactiva program, 97% of this loan book is without payment holiday and only 1% are overdue on their payment. It is important to point out that for the FOGAPE Reactiva we did not give payment holidays. Do not rule out this option in the future. As we can see on slide 17, these positive asset quality indicators led to a cost of credit of only 1.1% in the quarter, including the recognition of CLP 18 billion in additional provision.
We now have in our balance sheet CLP 168 billion in voluntary provisions to cover unexpected events in 2021 and forward. We have not yet reversed any additional provisions. It is important to point out that in April 2021, we also recalibrated some of our internal consumer loan expected loss models, amounting to a cost of CLP 28 billion in provisions in said month. Given the good performance of our portfolios and the high coverage for the full year, we are again improving our guidance for the cost of risk from 1.1%-1.2% to 1.0%-1.1%. On slide 18, we take a quick look at non-interest income trends. Fee income had a solid quarter, increasing 1.4% QoQ and 11.2% year-over-year.
Fee income was driven by strong opening of checking accounts, greater client loyalty, the rise in insurance brokerage, especially through our digital platforms, and a good rebound in various other products and services. Getnet, our acquiring business that we launched in the first quarter of this year, is already contributing CLP 1 billion in fees in the quarter. Total income from financial transactions increased 41.7% QoQ, mainly due to robust client treasury activity. This was offset by a loss in non-client treasury income. We continue to perform various liability management operations, which lowered current results in this line item, which should have a positive impact on NIM going forward. The rebound in revenues in the quarter was also accompanied by good cost control, as shown on slide 19.
Operating expenses increased 2.3% year-over-year, below the rate of inflation. The year-on-year growth of administrative expenses is due to costs associated to the launch of Getnet and the advance of our other digital initiatives in line with our CLP 250 million investment plan for the years 2021, 2023. The bank's efficiency ratio reached an impressive 37.5% year- to- date and 37.4% in the quarter. Regarding capital ratios, on slide 20, the bank finished the quarter with a core capital ratio of 10.1% and a total BIS ratio of 14.7%. It is important to remind investors that our capital ratios as of June 2021 are net of the 60% dividend payout of 2020 earnings that the bank made in April of this year. This lowered our core capital ratios, or our ratios in total, by 50 basis points. The total BIS ratio reached 14.7% at the end of June.
For the rest of the year, we expect risk-weighted assets to accelerate as loan growth picks up, and we estimate a payout of 50% - 60% of 2021 earnings, depending on the velocity of risk-weighted asset growth. With the current share price and our estimated profitability for this year, we expect a solid dividend yield between 5% and 6%. Once again, this will depend on the velocity of loan and risk-weighted asset growth. On slide 21, we give an update regarding Basel III. The phase-in of Basel III has commenced and will be fully in place by December 1st, 2025. Beginning the first quarter of 2021, banks can already include as AT1 capital subordinated debt for up to 1.5% of risk-weighted assets. These will be gradually replaced with perpetual bonds in the following years.
Under these new requirements, we have transferred CLP 502 billion of sub-debt from Tier 2 to Tier 1. The inclusion of market and operational risk-weighted assets will begin in December 2021. We also present in this slide our assumptions for the phase-in of Basel III and the minimums required for the bank. This includes the various buffer, our assumptions for Pillar 2, and additional buffer to be set by the bank's board. In summary, by the end of this year, we expect the minimum core capital ratio required for us to be around 8.6% and a total BIS ratio of 12.8%. According to our estimates, we should be well above these levels at year-end. In the final portion of this presentation, starting on slide 22, we will give an update on our most significant strategic initiatives. On slide 23, we start by reviewing our strategic objectives for our main stakeholders.
This quarter, we would like to focus on the inroads we made regarding gender equality and our efforts related to be the best bank for our customers, gaining their loyalty by leading in digital excellence and experience. On slide 24, we show how in 2Q 2021, the bank achieved a milestone regarding gender equality by becoming the first bank in Chile to be certified by the Ministry of Women and Gender Equality as a company that provides equal opportunity policies and practices within the organization. To receive this seal, a company must have tools in place to create a gender-equal environment and a balance between work and personal life. This in line with the UN social development goals, which includes achieving gender equality. Another valuable achievement was that we were also confirmed as a constituent of the FTSE4Good Index Series.
This index is designed to measure the performance of companies demonstrating strong ESG practice. We are excited to continue to share with you our progresses throughout the years in improving our ESG initiatives. As shown on slide 25, we have finally set a date for our ESG talk. Please save October 14th, 2021 in your calendar, where various members from the board and executive team will participate, followed by a live Q&A session. We hope you will be able to participate. Moving on to slide 26, during the quarter, our key digital initiatives continued to advance with great success. This has led to an important improvement in profitability, client growth, and satisfaction. On slide 27, we show how Santander Life and Superdigital are still our heavy-duty products in bringing in new clients to the bank.
Total Santander Life clients increased 238% year-over-year, and in 2Q 2021, Santander Life opened almost 118,000 new checking accounts, reaching a total of 729,000 clients. Santander Life continues to be the biggest game changer in Chile and digital banking market, leading to high client growth, rapid monetization, and low client acquisition costs. A large part of these clients continue to be digitally onboarded with a marginal cost close to CLP 1. Superdigital also continued to show a positive performance and has continued to sign alliances with brands as a way of opening up its client base. Now, Superdigital has an alliance with Cornershop as well as top where shoppers can opt to receiving their salary on the app with special discounts and gasoline, similar to the alliance with Uber. Clients are also able to receive payment from the government directly to their Superdigital accounts, a key feature during these times.
At the end of June 2021, we already had close to 182,000 clients with record account openings in the quarter. Further good news came from Getnet, our new acquiring business, as shown on slide 28. Getnet was officially launched in February 2021 and has already sold over 28,000 POSs, well surpassing our 20,000 goal for the year. An important fact to highlight is that 99% of the clients that have Getnet are SMEs, our target market. Moreover, 63% of the clients have auto-installed their new POS, which demonstrates the efficiency of Getnet systems. Our NPS score for this product is also strong at 80 points, helping to improve the overall NPS score of the SME segment. This product has been quick to monetize, with already CLP 1 billion generated in fees since its launch. On slide 29, we show how our digital insurance brokerage platforms also had a positive quarter.
Klare continued to expand its product offer and now brokers insurance for medical emergencies, oncology, and has launched a new life insurance that incorporates pension savings as well. The amount of alliance with insurance companies also continued to expand. Autocompara shined in the quarter. The sale of auto insurance policies increased 25% year-over-year, with policies sold achieving a 13% cost reduction compared to other platforms. On slide 30, we show how we continued forward with our CLP 250 million investment plan for the years 2021-2023, mainly focused on digital initiatives and automization. The bank is in the process of transforming its branch network, focusing on the Work Café model and closing less productive branches that have low client flow. With these investments, productivity continues to rise, with volume defined as loans plus deposits per branch increasing 10.5% year-over-year, and volumes per employee rising 11.7%.
In June 2021, the bank reached an agreement with Servipag, a franchise with over 200 cash payment centers across the country where clients can cash and deposit checks and pay loans, among other cash services. This should free up the branches for more value-added services going forward and help us to accelerate the digitalization of our branch network. On slide 31, we 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 and are well established as number one for NPS in Chile. On slide 32, we also 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 had a net opening of 501,755 accounts compared to only 217,000 for the rest of the system, excluding us. With this, we have been able to increase our market share by almost 6 percentage points in 12 months from 22% to 28% in just one year. On slide 38, all of these efforts are translating into high client growth and increased client loyalty. Total clients grew 13% year-on-year. Digital clients increased 39% to almost 1.9 million clients, and total clients with a current account, including checking and debit, increased 45%. Of our total clients, almost more than half are digital clients, meaning they use their online accounts for transactions, to check balances, among other services. The next step is to improve loyalty.
Total loyal clients grew at an impressive 8% year-over-year. With the inroads made in digital channels and NPS, coupled with the full reopening of our physical network, there is ample room for cross-selling in coming quarters. To conclude on the next slide, we give some update on our guidance. The positive results achieved these last two quarters would permit us to be more optimistic than we were previously. We have revised our outlook for this year. Regarding loan growth, this should accelerate as the year progresses. With the new cash transfers from the government through the Emergency Family Income that should last up to September 2021, loans should remain in the low single digits but rapidly accelerating in the last quarter of this year and in 2022. NIMs will remain at the 4.1 level, as we previously mentioned, slightly higher than our previous guidance.
Asset quality is clearly showing positive trends, and we have improved our cost of credit guidance from 1.2% to a level between 1% and 1.1%. Fee growth should be another important driver due to the reopening of the economy and the success of our various digital initiatives. We expect fees to rise 8%-10% this year. Possible regulatory changes always remain the main threat to this forecast. We expect costs to grow in line with inflation and an efficiency ratio of around 38%. All this said, we have risen our ROE expectation from 16%-18% to 19%-20%. At this time, we will gladly answer any questions you may have.
Thanks very much for the presentation. We will now be entering into the Q&A session. I know that a number of callers have already prompted to ask. However, if you have a question, I would like to ask you to press star two on your telephone pad and wait for your name to be called. That is star two. If you're dialed in via the web, you may also ask a follow-up question. We'll now give a minute or so for the questions to come in. Thank you. Our first question comes from Mr. Tito Labarta from Goldman Sachs. Please go ahead, sir. Your line is open.
Hi. Good morning, Emiliano and Robert. Thanks for the call. A couple of questions. Maybe one following up on the loan growth. Yeah, I understand you expect it to accelerate in the fourth quarter. Maybe I want to dig a little bit in 2022, right? Because you have a strong recovery in GDP this year, but you have the cash transfers, which kind of keeps the loan growth. What kind of GDP growth would you expect for 2022, and how would you see loan growth in 2022? A second question on the capital. You're well above the minimum, right, at 10.1%. You expect with Basel III, that minimum being 8.6%. By 2025 on the chart here, you expect that to go to 10%.
Do you think you'll have to operate with a higher level of capital from the 10.1% you have today over the next five years? Just to get a sense of, is this 10% the right level? Will you have to operate around 11? What do you think is the right level for capital given the increasing requirements for Basel III? Thank you.
Okay. Hi, Tito. Loan growth. First, let's start with GDP. Next year, GDP does slow down the growth rate because government spending is increasing very high. I don't remember the exact figure, but I think it's above 20%. We do think that next year, employment should begin to improve, investment should be higher. All that, and with lower cash transfers and these things in a more kind of normal economy, this should lead to higher loan growth. This year, even though the economy is growing at probably close to 8%, with the economy growing 2% or 3% in real terms, going back to more normalized multiplier effects, that should lead to loan growth 6%-8% next year, and probably much better loan growth in consumer and probably on the commercial side. Mortgage has remained pretty healthy throughout the pandemic.
That's basically the answer to the first question. A normalized multiplier in loan growth next year, probably beginning at the end of this year, with GDP growing 2%-3% with a multiplier of 1.5 in real terms, plus inflation of around 3%, we get single high-digit loan growth next year.
Tito, regarding your second question about the capital, it is important to mention that that 10% that is on slide 21 already includes 100 basis points of what we call management buffer. We are already factoring in there a prudent cushion above the expected regulatory minimum. Having said that, above 10%, we are comfortable. I mean, we do expect to be in the low run between 10.5%-11%, slightly higher than where we are now. It is also true that with the profitability we are creating and generating, we expect to build that remaining capital in the coming quarters of the year. Above 10%, we are okay. Maybe we will be moving between 10.5%-11% as a long-term CET1 ratio.
Also, that implies that in terms of long-term payout, maybe the long-term payout is around 50% rather than the 60% or 70% we have had in the last few years, in order to keep that 10.5%-11% CET1 target ratio.
Great. Thanks, Emiliano and Robert. That's very helpful. Maybe just one follow-up then. In terms of the ROE, I know you increased the guidance for this year, but do you think that 19%-20% is sustainable, or is this year supported a bit by relatively higher inflation? Cost of risk, I know you lowered the guidance, but is that 1%-1.1% sustainable? Just thinking about long-term ROE and if you can sustain this level, you get back to maybe 17%, 18%, just tell me your initial thoughts on that.
We see difficult to sustain these levels of ROE as long-term ROEs, basically because we have to remember that now interest rates are going up, and that's going to pressure our cost of funds. As you said, inflation now, it's relatively high. It might stay where it is for a while, but when inflation conversion to 2%, that will also pressure our NIM and NII. In terms of cost of risk, as you also mentioned, we are at a very low level. We think that we can stay there for a while, but we don't see the 20%+ ROE as long-term ROEs.
All right. Thank you very much, Emiliano.
Thank you very much. Our next question comes from Mr. Andres Coello from Scotiabank. Please go ahead, sir. Your line is open.
Hi, thank you for taking my question. My question, the first one is related to fee income. You mentioned that the fees were held by Superdigital, Santander Life, and also Autocompara. I was wondering if you could help us quantify this or to know how big are the fees that are generated by these type of products, or what growth you have seen in the fees generated by those products, or in the medium term, what size of fees you expect to get from those products. The second question is related to the other comprehensive income. Based on our calculations, there was a negative impact of around, I think, CLP 109 billion. I was wondering if you could talk a little bit about the drivers of that and whether that can be expected to be reversed. Thank you.
Regarding fee income, effectively, we've been opening more accounts, selling more, especially Autocompara, more car sales. All this you can see. Santander Life is the big driver of fees, I would say. Superdigital is more of a pass-through, where we get new clients to eventually move them, if they're good clients, to other platforms of the bank. Santander Life should be generating this year between fees, net interest income, between around CLP 60 billion to CLP 70 billion. Okay? Most of that is fees, but more than fees, most of it is fees and non-risk income. It's the spread we get over the checking account balances. Life already has around CLP 400 billion, CLP 500 billion in checking account balances, plus the fees. That's the bulk of the CLP 70 billion or so that Life is generating in income a year.
There's a lot of space to grow on the lending side when, one, there's loan demand, and also when we start being a little more open to lending to the middle income. Life has the advantage of having the Merito Life program where we have really good information regarding credit scoring. Life today is the big generator of income, is the fees, which you basically see in card fees and checking account fees. In card fees, the really interesting thing, not only with Life but Superdigital, is that there's indications that when they open these products, we become their main bank quickly because that is really driving, especially debit card fees. Okay? A lot of this online purchasing, people going to shops physically, debit card fees are growing very strongly because of the greater usage, and those are the new Life and Santander Superdigital clients.
Autocompara and other insurance, you can see on the insurance brokerage. Last year, it's still not growing year-over-year because in May of last year, remember, we had to adjust some of the prices of our products, especially fraud insurance. We had to recognize a bigger cost there. If you look on the quarter-on-quarter, which is a more clean growth, we're growing almost at a 12% annualized basis, and that's where you see the impact, especially of Autocompara. The good thing with insurance brokerage is that we had to start to sell more loan products.
insurance. That's also going to push that line. I think insurance brokerage is going to continue to grow. Basically, we should continue to see good growth in card fees and Getnet, and insurance brokers, and in checking accounts. Checking accounts, there's the flat fee. These products aren't very expensive from a flat fee basis, that should begin to add on. Remember last year, we also had to reduce our checking account fees for some clients because some of these products included a cyber fraud insurance, which we had to eliminate. As the year progresses, that effect is going to be washed away, and you're going to see the full growth rate of the new clients. That's why I think fees have good outlook going forward. The only negative is regulatory. I don't think anything will come out this year.
The law that establishes the governance for interchange fees has already passed. Okay? They're going to fix interchange fees, but now the CMF, the central bank, and the Fiscalía Nacional Económica, I believe, have to set up a committee to define interchange fees. We don't know what the levels are yet, at least it's a technical committee. These will be published next year. They have six months. That could lower fee growth, obviously, but overall, fee growth looks positive going forward.
Regarding your second question about the OCI in the quarter, that number is coming from the valuation, the mark to market of our available for sale portfolio. It's our ALCO portfolio. That is the portfolio we use to manage the interest rate risk of the balance sheet and has been one of the crucial parts of sustaining the NIMs and the NII performance we have had these last 12, 18 months. That negative number, our ALCO portfolio is 100% risk-free. We only have sovereign bonds, so we don't see that as a loss.
We see that more like an opportunity cost that is showing that today, at current rates, considering the increase in long-term rates that was produced in part because of the pension fund withdrawals and in part because of the change in the monetary policy from the central bank, and also in part because of the behavior and the performance of interest rates across the globe. We see there an opportunity cost. Definitely, that will revert in the future. It's just a matter of time. The average duration for the portfolio is four years. Basically, that number will go back to zero, basically will become a positive going forward in the last years. It's difficult to say if this is the worst or if we can have long-term rates even higher than where it is.
Generally speaking, people don't see further room for rates to go up because they are now really high, and the slope of the curve is quite significant. If rates stay where they are, we will be reverting that number soon. If rates go up a bit more in the coming months, we will have maybe slightly more negative numbers this quarter or this year, and we'll start reverting that starting next year to, let's say, go back to zero as the time passes and the portfolio decays.
Just to add on real quickly. You see that our NII has been growing. We get a very nice risk return on this position. Also on Basel III, today, these assets, which, as Emiliano said, are all Chilean sovereign, risk-free. Their risk weight is 10%, and it's going to go down to zero. On a risk-weighted basis, Basel III, we're getting a very nice spread with zero risk weighting. That's why we feel also comfortable that this is a very good in terms of risk return reward for us.
Understood. Thank you for the very comprehensive answer. Thank you.
Thank you very much. Our next question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir.
Good morning, Emiliano, Robert, and Claudio. Congratulations in your results. My first question is on provision charges. As you mentioned, since Q4 2019, you have been building additional provisions of around CLP 168 billion. We have seen that the program loans have shown moderate deterioration. Lockdowns are starting to ease. Pension withdrawals have helped to maintain asset quality under control. I understand that you are still concerned about the third, fourth wave. When you think there could be a possibility to release those provisions, you think this could happen by year-end or it should be more next year? My second question is if you can elaborate on your NIMs expectations. You continue to have high inflation, which is positive for NIMs.
On the other hand, you are also starting to have higher interest rates that could be putting pressure in your funding. So what should we expect for NIMs through the year considering these two variables? My last question is on your ROE. As you mentioned, it has been improved to 19%-20% this year from 16%-18% before. I think this positions the bank as the best one in terms of ROE among the Andean banks. Again, already at 19%-20% this year. Where do you see the long-term ROE for the bank? Thank you.
Okay. Thank you, Ernesto, for your comments and your questions. Regarding provisions, we don't see any relevant chance of reverting voluntary provisions in the coming months. In any case, we would also be considered to revert that maybe in the opposite scenario to the one you are describing. We would use the voluntary provisions basically if the worst-case scenario or if the situation deteriorates and we think that the scenario for what the voluntary provisions were built, it's showing up, we would consider to use that. If that's not the case, and the situation stays as it is now or better, we will keep that extra coverage for rainy days looking forward. Also, if the situation keeps improving and maybe because of an additional pension funds withdrawal or because of additional cuts from the government to the households, we still see the underlying cost of risk at low.
When I say low, I say, I don't know, 40, 50 basis points of cost of risk. We would consider to build even extra voluntary provisions to keep a not so low cost of risk. At the end, we don't think the cycle of the COVID crisis is over. We are more advanced in that cycle, we want to have a cushion and a reserve to act in case the situation gets better. We don't foresee to reverse voluntary provisions, let's say, in a good case scenario. Regarding NIMs, as you said, there are many moving parts, inflation is relatively high, and it's expected to stay high, which is good for NIMs. The central bank increasing the interest rates is not good for our NIM. Considering their outlook, they will be increasing the rates relatively aggressively in the next 12, 18 months.
That will pressure our NIM. Then you have on the mix side, you have two realities. On the asset side mix, we should have a tailwind for NIMs because at the end, today, we are mainly growing in mortgages and state-guaranteed loans. Spreads are basically very low. When the consumer activity, let's say, revives and we start to grow in that part of the portfolio, we will have good news for NIMs on the asset side. On the liability side, it's the opposite because definitely time deposits will be more costly because interest rates are going up. Also, the mix effects, we should see demand deposits stop growing at the pace they are growing now.
We can see some migration, if you want, from demand deposits to time deposits, considering that the opportunity cost is higher, that will also, let's say, hit our cost of funds. As we included in the guidance that our NIM expectations are factoring in all these things are slightly lower than where we are now and going towards 4% as a, let's say, more stable level of NIMs and not staying around 4.2 or 4.3, where we have been lately. Do you want to take the-
ROE?
Yeah.
Yeah. This ties directly into the NIM expectations. Think of it that we have 4.2%, 4.3% NIMs, which are obviously very good, well managed. That is a big driver in the ROE, to reach these ROEs of around 20% this year. In the long term, with the normalization of the NIMs in the next few years, and it depends on loan growth, other factors, but around 4%, the long-term ROE is closer to 17%-18%. Okay?
Thank you very much, Emiliano and Robert. Just a follow-up in terms of the potential release of extra provisions. This could happen more next year if you are not seeing more waves related to COVID-19, right?
Basically, let's give you an example. The Delta variant in Chile comes, and it's a really bad scenario. Okay. We know that it's temporary, okay, so that the new vaccines will come, people get another shot, whatever. There, you might use it. Okay. Basically, we're saving these provisions. If there's another outbreak and we have a temporary, once again, increase in risk, and that will permit us to use the cushion more than releasing the cushion. Going forward, everything goes well, and our cost of risk remains at 1%. We could keep those for another unexpected event that we consider temporary. Okay. If nothing happens and all goes well, we might not use them, okay. Our cost of risk should go to 1%. Okay.
I think you should see them more as a kind of backstop for us for, let's say, really bad cost of risk scenarios, because we will definitely tap them to, let's say, contain that extremely high cost of risk rather than using them to show extremely low cost of risk because we are tapping the 1% provision.
Yeah.
Okay, understood. You will keep it for another difficult event.
Exactly.
Yeah.
Yeah. Perfect. Thank you so much. Just a follow-up in terms of NIM. NIMs will be kind of stable, considering high inflations and that offsetting the higher interest rates in the cost of funding. I will say 12 months later, we can start to see the benefits from the increase in interest rates, right?
Yeah. Basically, eventually you get more loan growth, yield will go up again. That's why, there'll be volatility one quarter or another in NIM, but overall around 4% versus the 4.2%-4.3% that we're seeing now.
Okay, perfect. Thank you very much.
Thank you very much. Our next question comes from Mr. Sebastian Gallego from Credicorp Capital. Please go ahead, sir.
Thank you. Good morning, and yeah, congratulations on very strong results. I have some questions. The first one, just a follow-up, and maybe if we can go deeper on the rationale behind the way you see accelerating loan growth as the year progresses. Why do you see that in a scenario where we could potentially see another round of pension fund withdrawals in Chile, we could see an extension of the IFE support, we could see just a fading effect from the FOGAPE loans, and you also have presidential and the constitutional process going on. I just want to get a sense on why do you see the accelerating progress on loan growth. Maybe second question will be related to investment plan. If you could elaborate on how much have you spent as of today, considering your investment plan from 2021 - 2023.
Maybe, if I may, the third one if you could elaborate a bit more on current regulatory risk beyond the interchangeable fees that you recently discussed. Thank you.
Hello, Sebastian. Thank you for your question. Regarding loan growth, I would say that guidance we are providing implies no further pension fund withdrawals and no further help from the government on top of the ones already announced. I would say, not a significant impact from the Delta variant. I would say that it's, and you can argue, as you pointed out, that is a relatively risky scenario in the sense that it might be too optimistic from the loan growth point of view, because now there's a fourth pension fund withdrawal in discussion in Congress, and also the government has stated that they will keep the help coming for the time that it's needed.
Yes, I think it's fair to argue that if any of those things happen, either additional pension funds withdrawals or more fiscal help from the government, we can see a delay in that rebound in lending. It's true that that would be bad for loan growth, but it would be good for inflation, cost of risk, and I would say NIM coming from inflation and also cost of risk. You can expect the loan growth rebound to happen when all these things stop happening, I mean, all these withdrawals or fiscal stimulus from the government.
Yeah, just to add on real quickly. There's also the growth of investment. GDP is fluctuating because of the government help and consumption, but investment should be accelerating. We're going to see a rebound in commercial loans. In fact, we're starting to see that in the bank currently. There's also the third event, which is the external growth of the world economy. That will definitely have an impact on commercial. Okay.
And-
Go ahead. Sorry.
Go ahead. Yeah. One element, an additional element is that last year we saw an increase in the leverage because the contraction in GDP was much stronger than the evolution of loans. What we have seen this year is a process of de-leveraging. Our estimation of loan growth is consistent with a deleveraging process to go back to the situation we had previous to the pandemic. That is more or less what is implicit here. Still, somehow, the lower growth of loans than GDP in the next few months, then picking up as this de-leveraging process ends up.
Yeah. Regarding the investment plan, it's more or less evened out 1/3 per year. We've had more or less one third of those CLP 250 million we're going to spend this year. A lot is going to automatization, digitalization, among other products. I think this year, the big focus is automatization and to make the back office processes and the center offices, corporate center, all much more efficient. In the next few years, we'll be seeing a bigger transformation of branches and obviously launching of new products and services. A lot of interesting things coming. Regarding regulatory risks, we mentioned the regulation of interchange fees. That's a reality. Now they're setting up the governance of how to do that. I think, as we said before, an important thing there is that this is done by technical committee.
There will be an impact, but we don't know how much. I think the whole process, in the end, is better than what we initially thought. We have to wait till next year. They have six months to figure these things out. Other regulatory risks, well, in the last call, we talked about the VAT tax reduction. Claudio, I don't know if you have any update regarding the taxes and how could that maybe impact inflation, if there's any new things there.
No. What was voted this week was the reduction of the tax on fuels. It was rejected in the commission at the House. We still think that there is little chance that tax reduction on fuels and the VAT reduction will pass the Congress.
Yeah. In terms of regulatory risk, apart from the interchange fees that we will know them maybe later this year or early next year. When you go to the traditional playbook of potential regulations affecting banks, here in Chile, we are relatively advanced. We have gone through most of them, from interest rate caps. We also now have Basel III implemented with the capital requirements going up. You have the freeze on fees. At the end, apart from the interchange fees, there is nothing on the table right now. It's not so easy for us to foresee any potential piece of regulations to the ones that we have already known and are already in place.
Perfect. Thank you. Very clear.
Thank you very much. Our next question comes from Olavo Arthuzo from UBS. Please go ahead.
Yes. Thank you, Emiliano, Robert, Claudio, for taking my question. I have two. First one. As you know, Santander Brasil released yesterday their popular results with the consolidated banks earnings separately from Getnet. We know that the foreign company basically started its operations in Chile at the beginning of this year on the new sale strategy. Please, could you share with us some potential numbers that Getnet could achieve in Chile? After the guidance revision and your conversation with the market participants, how much is the current market share of the company in terms of financial volume transacted, and how much it could reach in the following years? If you could talk about the market share number of POS, I would appreciate it as well. Thank you very much.
Okay. Thank you for your questions. In terms of Getnet, that has been a really successful story for us. The market share in terms of transactions is still building up. We also have to consider that we are in the middle of the pandemic. We are still to launch the e-commerce leg of Getnet. Definitely, that has been a drag. Even with that drag, we have already reached 15% market share in terms of POS in basically four months. We are growing at a very good pace. Also, it's important to mention that at the beginning, we started basically using the existing clients, the Santander clients, to sell the POS. Now, this has been a very successful strategy to capture new clients. We are capturing new clients to the bank and also including Getnet in their solutions.
Our ambition in that market is high. We expect to keep growing market share and definitely be one of the relevant players in the acquired market, which is a very, let's say, active market here now in Chile, because there are a few other banks who have announced to enter the market. I think we have some kind of advantage of first-mover advantage in growing faster and earlier, and we expect to be one of the leaders there.
Sorry, Emil, we want to reach 15% market share? Our market share now is like 3%.
No. The POS is 15.
POS is 15?
Yeah, 15. Yeah.
Okay. 3% in terms of transactions.
Yeah. Okay. Today we have roughly 30,000 POS installed. Active POS from Transbank are around 200,000 plus. Basically, Transbank was the only relevant player. Let's say we are already close to 15% in terms of POS. The share in transactions and activity will only go up when the pandemic, let's say, goes away. Also when we implement the e-commerce solution, that will definitely be a game changer because they are, as we all know, a big part of the economy now. It's operating in e-commerce, and not having that part of the solution, it's a big drag. We expect to go out to the market with that in the coming weeks.
Okay. Sorry, guys. Just for me to have a clear view on it. It's 15% in terms of POS and 3% in terms of financial transactions. Is that right?
That's right. Yeah. That's in part because of the early stage we are, and also because we haven't gotten into big retailers. 99% of the clients are SMEs. Money-wise, that number will, let's say, stay low as far as we don't get into the big retailers with, let's say, the big amounts of transactions and sales.
Do you have any potential projection or guidance for potential market share in terms of financial transactions or close the gap to the POS, like 3%?
As I said, our ambition is high, but it's also important to have the right economics. Today, let's say, with the current market conditions, considering the MDRs that the big retailers are getting and the interchange fees in place, it's not, let's say, profitable to get into that. When we get the right economics in terms of MDRs and interchange fees to get into that, we can expect to be also one of the leader players in terms of transactions and not only POS. As I said, that will depend on having the right economics. As of today, basically, it's possible to make money, and we will get into that, and we can expect to have a big number of market share and transactions when the economics to get into big retailers are adequate.
Okay. Thank you very much for this. My second question, I would like to talk about operating expenses, more specific about the branches. As we could see in the quarter release of the bank, it reduced in 23 the number of the branches this quarter. Given now the ramifications of the COVID spread, what could you tell us about the second half and the next year in terms of the physical strategy? In other words, is on the bank's pipeline to reduce even more the number of branches? If you could also put the role of Work Café on this context, it will help us a lot.
Okay. Yeah, as you saw on the slide, we showed branches have fallen by 6% or so. Mainly, what we've done more recently is we've closed some of their select branches for the middle high income. Okay. Basically, because these branches, first of all, most of them weren't at the street level. Given the pandemic and given the advance of digitalization in Chile, a lot of people didn't go to these branches, so there was a lot of room to consolidate the square meters. The main closures have come from there. In fact, we've gone from 34 to 13 select branches. That's obviously a key area where we're going to continue to evaluate given the behavior of clients. Okay. Now, the other thing we've done, we've opened a couple of Work Cafés.
The Work Café is going to speed up again when they can reopen. The Work Cafés are working. The front office is working. Their business is open, but the co-working spaces are still closed. I think when we continue advancing with the pandemic, we're going to reopen the co-working. It takes 2 weeks to get that thing up and running. That will probably be an important milestone in the 2nd half of this year. Then we're going to continue with the process of branch transformation. Here-The key thing with the Work Café, apart from it being a really nice format where a lot of people come to the Work Café to do business, is the Work Café also has a very nice digital format, which in itself is very profitable.
Going forward, we're going to use the lessons learned from the Work Café to continue transforming the rest of the traditional branches. Some of them will have a big co-working space, some of them will not. The digital format of not having that many human tellers, having no back office, no vaults, that is something that is already developed in the Work Café format. At the same time, if these digital branches, which are probably smaller and more efficient, are very productive, we could actually increase openings into the future. What is clear is that things will be more efficient and the square meters will fall, but not necessarily the number of branches. Overall, there is going to be a big process in the next few years of the digital transformation.
We have, of the 344 branches, 272, what we call traditional standard, like the old branch. There is a lot of work to do, that's where the bulk of investment going forward are going to be. Another important thing we mentioned is this agreement with Servipag. This agreement is actually very important because today, we're very strong in cash management. Let's say we have a large construction company. They pay their workers with Santander, but a lot of these workers, but still an important portion, do not have a checking account or a debit card account, or they prefer just to receive their monthly salary in cash. At the end of the month, of the day they're paid, we have a lot of our branches which are cluttered.
This agreement with Servipag will permit a lot of people who do things at our branches, will have 200 more cash payment centers to pay bills, to get their salary, to pay loans, et cetera. This will really permit us to move forward more rapidly in the transformation of our branches. That's going to be an important process going forward, which will permit us to be more and more productive. Definitely lower square meters. I don't know how many branches will be closed, but definitely the branches will be much more effective and much more productive.
Totally clear, Robert. Thank you for this and thank you all, guys.
Okay. Thank you.
Thank you. Our final question today looks to be from Mr. Abraham Martinez from Fitch Ratings. Please go ahead, sir. Just once again, Mr. Abraham, your line is open. Just please make sure your microphone is enabled. Once again, Mr. Abraham. I think Mr. Abraham has dropped. He's reconnecting. We'll give maybe another 10 seconds.
Okay. We'll wait 10 seconds. If not, I'll call him.
It looks like we have no further questions. I'll pass the line back to the management team for their concluding remarks. Thank you.
Well, thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.
Thank you. We will now be concluding the call and closing all lines. Thank you.