Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Santander Chile's first quarter 2021 results call. At this time, all participant lines are in listen-only mode. The format of today's call will be a presentation by Santander Chile management and IR team, followed by a question and answer session. After the call, you will have the opportunity to ask questions. If you are dialed in via the web, you may also ask questions using the voice feature. Without further ado, I would now like to pass the line to Emiliano Muratore, the CFO of Santander Chile. Emiliano, the floor is yours.
Good morning, everyone. Welcome to Banco Santander-Chile's first 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, our Chief Economist from our research team. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy. During the quarter, Chile faced a second coronavirus wave, but the successful vaccination program should enable a wider reopening and economic recovery soon. We have a lot to discuss today with various important messages. Claudio will start with an update on the economy and macro scenario beginning on slide four. We will go into the results of the bank during the quarter. Finally, we will explain how we'll continue to progress in our digital strategy and other initiatives. Now I will hand the call over to Claudio.
Thank you, Emiliano. During the last quarter, Chile has confronted another wave of contagions, reaching a new peak in the first part of April. However, the vaccination process has proceeded fast. By mid-April, the country had vaccinated more than 7.5 million people, and almost 40% of the target population had already received two shots. This, and the massive lockdowns imposed in March, have begun to reduce the rate of contagions. Despite this, we estimate a return to a new normal will occur only by the middle of the third quarter. The government has implemented a new set of measures to support households and firms, including direct cash transfers and a new guaranteed program for SMEs. On slide five, we can also see how the country has benefited from a substantial improvement in its term of trade.
Copper has reached its maximum level in a decade, while other export prices have also risen. A better external outlook, plus the fast deployment of vaccines, have led to a substantial upward revision for growth this year. While during the second quarter, we might see a mild downturn, in the third quarter, the economy should recover to its pre-pandemic levels. For the year, we estimate GDP will grow between 6% and 7%, a similar range as published by the last inflation report by the Central Bank. The labor market has remained weak. There are almost 1 million, or 10%, fewer jobs than before the pandemic, and the speed of job creation has slowed down. Despite a couple of upward surprises, inflation is still contained due to the slack of the economy and the currency appreciation in recent months. On slide six, we show our forecast on inflation and rates.
Going forward, we expect prices will slowly accelerate as the economy recovers. In spite of this, we estimate the Central Bank will keep its monetary policy rate unchanged during the whole year, and it will begin hiking just in the first quarter of next year. Medium- and long-term interest rates have begun to rise in response to external interest rate increases and the better outlook for the Chilean economy. Last week, the Congress approved a constitutional reform to allow for a third pension fund withdrawal. We estimate the total amount that could be withdrawn is about $ 17 billion, 6% of GDP, similar to the amount available in each of the previous two reforms. According to estimates by the Central Bank of Chile, a sizable share of the resources from past pension fund withdrawals have been used to reduce debt and increase all types of savings.
Less than 20% has been spent in consumption or investment. There are large amounts in banking accounts that could easily be translated into expenditure. That poses an upward risk for both activity and inflation. In the short run, the required portfolio adjustment by AFP will induce some financial price volatility. Interest rates will move up, as we have seen in recent days, and the exchange rate could appreciate. The Central Bank has announced a liquidity program to contain such volatility. It will reopen the special securities buyback program for bank bonds and term deposits with resources for up to $10 billion. The repo window for banks will be extended until August 2021. This week, the Chamber of Deputies approved a constitutional amendment for a new transitory wealth tax on the super-rich and a reduction in VAT. The bill has now to go to Senate.
If finally approved, the reduction in VAT would have an important downward short-term impact on prices and would entail an extra boost to consumption that might create inflationary pressures in the medium term.
Thank you, Claudio. We will now move on to explain our strong balance sheet and results, which showed strong trends in the quarter. Moving on to slide eight. Net income in the first quarter of 2021 totaled CLP 182 billion, an increase of 26.2% compared to the first quarter of last year. It is important to point out that these results include an additional provision of CLP 24 billion recognized in order to increase coverage ratios, considering the uncertainty still surrounding the potential impact on credit quality of the COVID-19 crisis. The 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 surpassed 20% for the second consecutive quarter. One of the most important drivers of our strong results in 2020 can be seen in slide nine, was net interest income.
Despite asset growth being focused on low-yielding and less risky assets, we still managed to obtain an 11% increase in NII with a strong NIM that reached 4.2%. UF inflation was strong at 1.1%, although lower than the previous quarter. Going forward, we expect UF inflation for the quarter to average around 0.8% - 0.9% per quarter. This should be positive for NIMs. There are some important headwinds that must be mentioned. These are a decrease in non-interest-bearing liabilities as current growth rates are difficult to sustain, the velocity at which short-term rates begin to rise, the rate of change in the loan mix as the economy begins to recover, and the incorporation of lower VAT taxes for some products that could lower inflation expectations in the short term. For these reasons, our NIM expectations for the full year remain at around 4%.
As we can see on slide 10, the bank outperformed the market in evolution of NIMs and NII, especially since the onset of the pandemic. Our NIM outpaced all of our main competitors. Our NII increased more than 11% during the last 12 months compared to a decline of 0.3% for the rest of the system and a decline of greater than 8% for our main competitor. This reflects not only our better balance sheet management, but also the strong growth of client deposits, especially checking accounts. As we can observe on slide 11, non-interest-bearing demand deposits increased 42.2% year-over-year due to high growth of retail checking accounts, continued strength in the bank's transactional banking service for companies, and the positive impact of the second withdrawal from pension funds.
On slide 12, 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 6.2% Qo Q and 50.6% year-over-year. With this growth, our market share and demand deposits reached 21.4%, placing us again in the number one spot in this product. Simultaneously, as shown on slide 13, the bank continued to enforce strict price discipline and Chilean peso deposits, improving our time deposit funding cost in nominal pesos, both in absolute terms and compared to our main peers. In the first quarter, the average quarterly cost of our Chilean peso deposits was 0.39%, below the monetary policy rate and lower than our main peers. On slide 14, we review loan growth. Total loans increased 0.4% year-over-year and 0.3% Q o Q.
Loan growth remained subdued due to the ongoing lockdowns at high liquidity levels, both at the corporate and personal level. Loan growth was mainly driven by the SME segment, which increased 1.5% QoQ and 20.8% year-over-year. In the quarter, CLP 241 billion were disbursed under the new FOGAPE Reactiva program. In January, the government launched a second phase of FOGAPE, called FOGAPE Reactiva, with some important differences compared to the initial program. FOGAPE Reactiva loans can be used to invest in new projects and not just for working capital. The average yearly rate for a FOGAPE Reactiva loan is approximately slightly above 8%, compared to 3.5% for the original FOGAPE, and maturities can reach up to eight years. Loans to individuals increased 2% year-over-year and 1.4% QoQ.
On the other hand, consumer loans decreased 2.3% QoQ and 11.4% as ongoing lockdowns and withdrawals from pension funds has kept demand low for these products. A bright spot in consumer lending in the quarter was Santander Consumer Finance. Auto loans were up 6% year-over-year and 7.2% QoQ. Profits from our auto lending business were up 129% year-over-year. Mortgage loans increased 8.7% year-over-year and 2.1% QoQ. Long-term interest rates have remained relatively attractive, contributing to the sustained growth, especially among high-income earners, and this has driven mortgage growth. In the middle market in CIB, loan trends were similar to previous quarters. As demand for working capital lines wane, a new project development has still not gained momentum. Our strategy with these segments continues to focus on non-lending activity.
This has resulted in an improved funding mix with high growth of demand deposits driving net interest income in the middle market and CIB to increase 25.7% and 38.8%, respectively, in 1Q compared to 1Q of last 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 continued to rise to 257%. The NPL and impaired loan ratio decreased to 5.1% and 1.3%, respectively. Regarding the evolution of payment holidays on slide 16, as of March 2021, less than 1% of the total loan book was still under a payment holiday. 86% of FOGAPE loans were under normal payment schedules, only 14% still had a payment holiday with an overdue ratio of 1%.
It is important to point out that for the FOGAPE Reactiva loans we gave in the first quarter, we did not give payment holidays but do not rule out this option in the future. For the rest of the loan book for which a payment holiday was granted, 99% of these loans have resumed their normal payment schedule with an impaired loan ratio of only 2%. As we can see on slide 17, these positive asset quality indicators led to a cost of credit of only 1% in the quarter, including the recognition of CLP 24 billion in additional provisions. We now have in our balance sheet, CLP 150 billion in voluntary provisions to cover unexpected events in 2021. We have not yet reversed any additional provisions. It is also important to point out that in April 2021, we will be recalibrating some of our internal consumer loan expected loss models.
This will signify a cost of around CLP 25 billion-CLP 29 billion in provisions in April. Including this, the cost of credit for the second quarter is still expected to be around 1%, as all asset quality indicators remain robust. We will have a small jump in provisions in April, normalizing in May and June, and the full quarter shouldn't be any major rise. For the full year, we have improved our guidance from 1.2%-1.3% cost of risk to 1.1%-1.2%, which is still conservative as we wait for the full effect of reopening and vaccines. On slide 18, we take a quick look at non-interest income trends. Fee income had a good quarter, increasing 9.3% Q o Q and 1.4% year-over-year.
Fee growth was driven by strong opening of checking accounts, greater client loyalty, a rise in insurance brokerage, especially through our digital platforms, and a good quarter for CIB and investment banking activities. Total income from financial transactions increased 29.1% year-over-year, mainly due to higher client treasury income. This was offset by a loss in non-client treasury income. Various liability management operations were executed in the quarter, which lowered current results which should have a positive impact on NIMs going forward. The rebound in revenues in the quarter was also accompanied by good cost control, as shown on slide 19. Operating expenses increased 1.5% year-over-year, and the bank's efficiency ratio reached 37.6%. The rise in administrative expenses in the quarter was driven by costs associated with the launch of Getnet and greater overall activity as we prepare for the reopening of the economy.
On slide 20, we see how this low growth of cost is leading to greater productivity. We continue forward with our $250 million investment plan for the years 2021 - 2023, mainly focused on digital initiatives and automation. In the quarter, the bank continued 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 volumes defined as loans plus deposit per branch increasing 8.5% and volumes per employee rising 8.7% year-over-year. Regarding capital ratios on slide 21, the bank finished the quarter with high capital ratios. Our core capital ratio reached 10.9% compared to 10.7% at year-end 2020. Our total BIS ratio reached 15.4%. At the Annual Shareholders Meeting held yesterday, a dividend of 60% of 2020's net income was approved and paid today.
On slide 22, we give an update regarding Basel III. The phase-in of Basel III has commenced and will be fully in place by December 2025. Beginning this quarter, banks now 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 subordinated debt from Tier 2 to Tier 1. At the same time, core capital now includes minority interests. The new weighting of risk-weighted assets and the incorporation of operational and market risk 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 buffers, our assumptions for Pillar 2, which are still not known, and the additional buffer to be set by the bank's Board. In summary, by the end of this year, we expect the minimum BIS ratio required of us will be 12.8%, rising to 14% by 2025. According to our estimates, we should already be above these levels at year-end. In the final portion of this presentation, starting page 24, we will give an update on our most significant strategic and business initiatives. Key advances were made in Life, Superdigital, and our digital insurance platforms, and we finally launched Getnet with great success. On slide 25, we show that Santander Life continues to be the main contributor to client growth. Total Life clients increased 239% year-over-year, and in the first quarter, Life opened 127,000 checking accounts.
Life already has more than 611,000 clients, 75% of which were digitally onboarded. The marginal cost of acquiring a new client through digital onboarding continues to decline and now is approximately $ 1. Superdigital opened a record amount of prepaid debit accounts in the quarter, providing an attractive alternative for unbanked Chileans to manage the money received from government initiatives during the pandemic. At the end of March, we already had close to 150,000 clients. Further good news came from Getnet, as shown on slide 26. Getnet was officially launched in February 2021. Client reception has been positive. Getnet has already sold over 16,700 POSs to date to more than 14,000 clients as of April. Moreover, 65% of the clients have auto-installed their new POS, which demonstrates the efficiency of Getnet systems. A star feature has been the deposit of sales receipts up to five times daily, including weekends.
On slide 27, we show how our digital insurance brokerage platforms also had a positive quarter. Klare continued to expand its product offer and now brokers online health and dental insurance and signed alliances with various new insurance companies. Autocompara also shines in the quarter. The sales of auto insurance policies increased 55% year-over-year, consolidating their leadership in this market. Moving on to slide 28, we show how the success of our digital initiatives has led to a 31% increase in digital clients, a 9% rise in loyal clients, and we continue to open 3x more checking accounts than the rest of the banking system combined. This has been accompanied by a strong improvement in our NPS score to 54 points, cementing our leadership in this indicator. This reflects that our strategy is working on all fronts in terms of client growth, client satisfaction, productivity, and profitability.
Moving on to slide 29, we update our most recent achievements in ESG. During this quarter, there were some major events to highlight in this matter. Our rating under MSCI was ratified at A, being a leader, especially in the ESG pillars of human capital development and financing environmental impact. We also published our Integrated Annual Report for the year 2020. For the first time, our Integrated Annual Report compliance not only with the GRI Standards, but also SASB, placing us at the forefront of ESG transparency. Santander Chile won first place in Great Place to Work ranking for the year 2020 for companies with over 1,000 employees. The bank achieved an average score of 92 points. This is notable considering the pandemic and lockdowns. This also reflects that not only have we transformed in a digital sense, but culturally as well.
In terms of our environmental footprint, on slide 30, we also show how we greatly reduced our environmental impact last year. Every significant metric showed a double-digit reduction. Teleworking clearly had an impact on these figures, and this has taught us how a lot can be achieved while consuming a lot less. On slide 31, we also show that we made progress in our ESG funding strategy. In the first months of this year, we issued two women SME bonds for a total of $150 million. The objective of these transactions is to contribute to the growth of small and medium-sized businesses with annual sales less than CLP 2 billion owned and operated by women. These two private placements are our first approach to sustainable bonds.
We are very content with our advances in ESG, and as displayed on slide 32, we announced that in the second half of this year, we will hold our first Santander Chile ESG Talk, with a similar format as our successful digital talk. We will be sending a save the date with additional information soon. To conclude, some update on guidance for 2021, given the progress made in the first quarter. We're on slide 33. The positive results achieved this quarter permits us to be cautiously optimistic for the rest of the year, but there are still risks in the road. Regarding loan growth, these should accelerate as the year progresses. With a new pension fund withdrawal, growth should remain in the low single digits. We see NIMs for the rest of the year at around 4%.
We expect a UF inflation of 3.7% for the full year 2021, while the monetary policy rate should remain at 0.5%. This should be positive for NIMs, but this could be partially offset by a decrease in non-interest-bearing liabilities as current growth rates are difficult to sustain, the velocity at which short-term rates begin to rise, the rate of change in the loan mix, and the incorporation of lower VAT taxes for some products that could temporarily lower inflation expectations. Asset quality is clearly showing positive trends, and we have improved our cost of credit guidance from 1.3%-1.4% to a level between 1.1% and 1.2%. 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 remain the main threat to this forecast.
We expect costs to grow in line with inflation, and we have improved our efficiency ratio outlook to 38%-39%. Finally, all of this said, we have risen our ROE expectations for this year from 15%-16% to 16%-18%. At this time, we will gladly answer any questions you may have.
Thank you very much for the presentation. We will now be turning to the Q&A session. If you have any questions, please now press star two on your telephone pad and wait for your name to be called. If you are dialed in via the web, you may also ask a voice question. We will not be taking text questions on this call. We will now give a minute or so for the questions to come in. Thank you. Our first question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir.
Hi, good morning, Emiliano, Robert, and Claudio. Thanks for your presentation and the opportunity to ask questions. My first question is on the economic and political outlook. There's a potential fourth withdrawal on pension funds, which I think continue to be very positive for the asset quality of the banks but it is also becoming a structural problem. Sorry, I don't know. There was music. Can you hear me?
Ernesto, please go ahead with your question.
I was talking about this fourth withdrawal on pension funds and saying that it will continue to be very positive for the asset quality of the banks, but I think it could also become a structural problem. We have seen in media the potential for withdrawal could be equivalent to six years of savings. I remember that the social unrest happened because of the low savings once people retire. I would appreciate your thoughts on this. On the other hand, we're seeing very good economic activity, as you pointed out, high commodity prices. Chile is facing the faster vaccination in the region. Why did you decide to build additional provision charges?
Also when you're expecting a lower cost of risk for the year, what do you need to see to release provisions at some point, and what could be that potential amount? Thank you.
Okay, thank you, Ernesto, for your question. Claudio, can you please cover the first question?
Sorry, I had an interruption. Can you summarize the question for me? Sorry.
Of course.
I'll summarize it. If you want, the talk of the fourth pension fund withdrawal, which is a fact. Sorry, the third. Basically, the question is how you view it. On the one hand, we see a lot of good news on the economic activity, but on the other hand, the pandemic is leaving a lot of structural problems in the savings and the pensions, fiscal. How you think all of that is going to factor out in growth and on the political side. Then there's another question about provisions, which we'll answer.
Yeah. Okay. Well, we had experience from last year where the withdrawal of funds from the pension accounts had an important impact on activity. We saw adverse surprises in growth during the third and fourth quarter last year. It was very clear when you break down the figures for GDP. There you can see, for example, the retail sector being very strong. Today, actually, the numbers for March, retail sales went up very strong at almost 25% year-on-year, which is reflecting that consumption has been relatively robust in this month. The withdrawal will provide support to income so that you can sustain a relatively solid consumption going forward. It is true, though, this has been shown by the Central Bank, that large amount of the money withdrawn from pension accounts have been used to reduce debt on one hand, and also for new type of savings.
For type of savings and also a lot of money in current accounts. I mentioned in my presentation that there is this other risk that if all of a sudden, all that money that is in current accounts goes to expenditure, we might have a shock to expenditure that might, on the one hand, produce a more fast recovery of the economy if the pandemic condition allow it. Also you might have some inflationary pressures in the short run. In the medium term, of course, these pension fund withdrawals, they might affect domestic savings, and that is an important issue. You have to have in mind, in any case, that we are in the middle of a discussion about the new pension reform and also the discussion about the constitutional change.
I think within that discussion, the country has to set up the condition for a new pension system. What is clear is that you need more contribution. I think that it is pretty clear that you need more contribution. It's not that clear what will happen in the medium term with savings. We saw that in the short run, savings have been declining. Although I have to say that the high copper price helps a lot because it makes fiscal savings on the other hand, more robust. We are estimating the fiscal deficit for this year between 3.5% and 4%, which is not particularly high considering the amount of fiscal expenditure that has been deployed to help families and companies. It's very difficult at this moment to be more clear about the evolution of savings in the medium term.
It is clear, though, that there will be a reform to the pension system, and in that reform, you might have an outcome that at least can sustain the savings that we have now.
Thank you. Thank you, Claudio. Going to your second question, Ernesto, about provisions. Basically, the reason why we took the voluntary provisions in the first quarter is because, as we said in the past, we think the crisis is still going on. I mean, it's not finished yet. Before the pandemic, in first quarter of last year, we were basically having a 1% cost of risk around that. We don't feel comfortable to, even though the behavior of the portfolio is being really good, we don't feel comfortable at this moment of the crisis to keep showing cost of risk significantly below the pre-COVID levels. It's difficult to argue that we can be as low as we are seeing today compared to pre-COVID.
That's why the 1% cost of risk of first quarter was built between two-thirds of that of, let's say, natural or underlying cost of risk, and the other by voluntary provisions. In the second quarter, as Robert mentioned, we are having this recalibration that will add a one-off to cost of risk. Basically, we are going to be around 1% again with this one-off. No need to build voluntary provisions in order to be around 1%. Talking about potential reversals of those voluntary provisions, that should happen when the, let's say, the higher cost of risk produced by the COVID crisis shows up. We don't see that happening in the near future. I mean, among other things, because of the withdrawals from pension funds and also all the state, the government help to households and families.
I feel in the near future, I would roll out reversals of voluntary provisions, and maybe we can see further voluntary provisions in case for the second half, we continue to see this healthy and extremely good behavior of the portfolio. It's fair to say that it's a conservative approach, but we think that the way to do banking is this, to be conservative. Even though vaccination is doing extremely well, it's also true that the number of cases and new cases is still in the middle of the third wave, and we are expecting those numbers to go down. Vaccination should be the big support for recovery and opening in the second half. We prefer to still be prudent and conservative in the way we manage coverage and the stock of voluntary provisions.
This is super helpful. Thank you very much. Let me make just one last question on the evolution of NIMs for the next quarters. I don't know if I heard correctly, you're expecting a reduction in VAT, that could help to improve consumption, that of course, could translate into higher consumer loan growth. You'd want to be clear on that. You pointed out that it could also bring higher inflation, that eventually could lead to higher rates. How are your thoughts on NIMs in the next quarters? If you experience at some point higher rates, what will be the impact in the short term?
Okay. In terms of NIMs, basically we were expecting flat NIMs for the rest of the year, like around 4%, because as you said, there are some tailwinds regarding NIMs. First is inflation, not only in Chile but also in the rest of the country. There is a kind of upwards pressure to inflation. Also all this consumption fever that we are seeing out of the pensions withdrawals and also all the help from the government. Also, as you said, the potential reduction of the VAT tax, that should sustain and take up consumption, and that should be good for inflation. It's also true that the interest rate going up, especially in the first phase of the tightening cycle, where we should see the short end moving up faster and sooner than the long end of the curve.
That kind of flattening of the curve is going to hurt our NIM, but we don't see that happening this year. It's more an issue for 2022. The potential VAT reduction, it's a law or a project that it's in Congress that came out this week. That's going to have a short-term downwards pressure to inflation, basically because prices go down because the VAT is lower. It's difficult now to see how the final outcome of the law is going to be. It's true that as it is right now, the fiscal impact is significant, around $6 billion a year. It's difficult to say at this moment what's going to come out from Congress as the final approach. It's going to have this two stages impact, and the first inflation is going to be lower and down.
Maybe by the third quarter, we should expect that impact on UF for the third quarter of this year. In the medium to long run, it's a stimulus to consumption to families, and that should sustain prices as the secondary derivative of the move. That's why we are seeing that potential risk to NIM for the rest of the year. I would say it's a one-off first because the law is proposing a temporary reduction of VAT. The VAT should go up back in 2023. In a two-year horizon, the effect will be neutral. In the meanwhile, we are going to have this upwards pressure to inflation because of higher consumption. Last week, I would say that the 4% for the rest of the year was a pretty fair expectation to have.
It might be lower for this year because of the VAT reduction, but that should recover from 2022 and onwards. In order to also compensate that potential headwind coming from interest rate going up, that's going to be a headwind, but the jump or the increase in inflation because of all the consumption situation should compensate that in the 12- 24 months horizon.
Very helpful. Thank you very much.
Thank you very much. Our next question comes from Miss Neha Agarwala from HSBC. Neha, your line is open. Please go ahead.
Hi. Sorry, I was mute. Congratulations on the results, and thank you for taking my question. I wanted to ask if there are any regulatory changes that you anticipate which could impact your fee income growth? I believe you mentioned that as a threat to your guidance.
Yeah. Hi. Yes. Hello. Yeah, as we said, there's always something coming up new, and that's why we always try to give a broad range in our guidance because there's a lot of good news coming from the economic side, from the bank, what the bank is doing. There is this noise specifically regarding fees. I would say one piece of legislation everyone should be looking out is potential, a fixing of the interchange fees, okay, for credit cards. I think that the law is rather technical. The good news is it's in quite technical hands. I think the outcome should be something relatively decent, but that's something you have to keep your eyes on to see what levels they end up actually fixing interchange fee. Obviously, that could impact fees from credit cards.
At the same time, that could actually be, and once again, we have to see what the final outcome is, could be positive for Getnet. Okay. Bad for us as a card issuer, positive for Getnet, especially as Getnet is growing. Obviously, this market is probably going to grow a lot because of Getnet, because of people taking on more cards, both debit and credit, because of online banking, digital, et cetera. That's it, basically. The main thing regarding fees is to keep an eye out on how this legislation evolves. As we said, that's something that every day we recommend looking at the newspapers and see what comes up, and to follow this.
To build on Robert's comment, it's true that a potential fix of the interchange fee could impact the fee revenue, but it's also true that we'll need to review the whole economics of the card issuance business. I think we can also manage that impact on the revenue expenses and on the fee expenses in the sense of the kind of mileage programs or all the loyalty programs that we have with our cards or our clients. Those are sustained on the current environment of interchange fee. If the interchange fees changes, so we'll need to review the full economics of the business.
That's very clear. Thank you so much.
Thank you. Ladies and gentlemen, just a reminder, for any additional questions, please press star two on your telephone pad and wait for your name to be called. If you're dialed in via the web, you may also ask a voice question there. We'll give a minute or so for any additional questions. Our next question comes from Mr. Santiago. Your line is open. Please go ahead.
Hello, can you hear me?
Yes. Please go ahead.
Okay. Thank you. Yeah, thank you for the presentation, congratulations for the nice results on the first quarter. I have a couple of questions. The first one, your guidance on loan growth shows a low single digit, accelerating as the year progresses. I just want to go deeper on the consumer segment, why are you so positive that loan growth on personal loans will pick up in a scenario of high liquidity and further withdrawal? Is it just the vaccine rollout and some other economic progress, are you looking to have a kind of a more aggressive strategy or you have more risk appetite? Second question, I would like to understand better on ROE guidance.
It is true, and you have done great on operating results, and therefore higher ROE, but it is also true that part of that higher ROE is explained by higher leverage on your balance sheet. Can you go over that point, and how do you see leverage in your balance sheet declining for the following years? Thank you very much.
Okay. Thank you. Yes, regarding loan growth, as we said, we're talking about low single digits for the full year. We're not really expecting a huge increase in loans. Definitely, we expect that when the economy starts to reopen, and if all that goes as planned, there has to be some reversal. If you saw up to now, in the last 12 months, consumer loans are falling more than 11%-12%. What we're saying there basically is there'll be a stop to that fall, a stabilization, and then things will slowly start to begin to grow. It's not really part of a big risk appetite. I think it's just more of an end to the decrease in that loan book. Okay? One important point is that we have seen some, in general, people have not been using their credit card.
Whether people use their credit card, obviously for many different things, but there's two or three items that are usually very, very big, and one of them is traveling. Okay. When you see people start to travel more, reopening, people start to use more their credit card. We think that's going to be a major thing. The other thing is that we've already seen a pickup in auto loans. The only loan product that grew in the consumer loan book was auto loans, and we actually had a spectacular quarter in the auto lending business, which also triggered a really nice quarter in the auto insurance business. That's basically with loan growth. We're not seeing a major acceleration, but enough to reach by year-end a low single-digit growth.
About your second questions about ROE and the impact of leverage there. You're right that if you look from the pure accounting point of view, leverage is higher and ROE has been going down. When you look at on a risk-weighted look, that is not the point. That's not the case. Our CET1 ratio, it's actually, I would say, in the higher range of the last four or five years, between 10.5%-11%. Going forward, we don't expect the leverage to go down. We don't need it to comply with Basel III, so it's not going to be an issue for us. The reason for that accounting higher leverage, if you want, is that today we have definitely a higher number of low or zero-weighting assets, basically government bonds.
That has to do with the amount of liquidity in the market and also the environment for interest rates, where you can get an attractive carry out of those securities. That might change in the future, and if that's the case, we would reduce that part of the balance sheet, even though the weighting for capital consumption is zero. It's more an opportunistic stance if you want. On a risk-weighted basis, we don't expect leverage to play a role in ROE going forward. It should be neutral from where we are now.
Perfect. Very clear. If I may, just to ask you one last thing on efficiency. You brought down again your efficiency target to pretty much a very good level of 38%- 39%. Is this something coming from a new initiative? Can we see even a lower number, or would you say that that would be probably the bottom that can be achieved?
Okay. Well, we improved our efficiency outlook because I think cost growth has been lower than we expected, and income growth was higher. I think the cost growth line will continue. We put their line with inflation around 3%-3.5%. I think it's not easy to achieve, but we have more control of that, which kind of the uncertainty regarding this ratio is more the income side. On the cost side, if you look at our numbers, you see that personnel expenses have been relatively flat. Even though a lot of wages or all the wages are indexed to inflation, I think the improvements in productivity we do there has a lot to do with the investments in technology, changing the branch network. Those have been really big drivers.
I would say the main reason around our improvement in guidance regarding cost and efficiency is productivity, and you can see that especially in personnel. While on the admin side, we continue to reflect some of the investments, the launching of Getnet and so forth. How far can it go? In the end, it really depends a little bit more on the income side. I think costs, we can maintain this low level of cost growth for the next few years, and that's at least our goal.
Perfect. Very clear. Thank you so much.
Thank you very much. Our next question comes from Mr. Jörg Friedemann from Citibank. Please go ahead, sir, your line is open.
Thank you, guys. Can you hear me well?
Yes. Please go ahead.
Perfect. Thank you very much for the opportunity. I have two questions. The first, I got positively impressed with your fee income guidance, even though we are in the bottom of this 8% range. You mentioned that Getnet might be positively impacted from the new regulations that affect interchange. Until when can we really count with Getnet revenues consolidated by Santander Chile? As we know, Getnet is being spun off in Brazil as the headquarters in Spain launch this global platform. How would Chile fit this global strategy? This is the first question. The second question is related to the effective tax rates that we expect to be at about 21%. This seems low, and especially considering that, as long as I understand, the effective tax rate in the first quarter was slightly higher.
Could we expect even lower than 20% rates for the coming quarters? Thank you.
Okay. Regarding fee income and Getnet, we're obviously well aware of the situation in Brazil with Getnet and the spinoff. Remember, we just started this business, and it's a subsidiary of the bank, and obviously for the next few years as we grow this business and gain traction, it should remain as part of the bank. Any other future operation way down the road, obviously will be done with taking in the interest of all shareholders. For now, obviously, there is no plan of a spinoff here in Chile. I can't speak farther down on the road, but today, the idea is to grow Getnet, to be an integral part of our business, an integral part of our product line, to grow and to have that contribute to our bottom line. That's the situation we're managing today regarding Getnet, which once again, is doing quite well.
It just started, and even though Chile is not small, but we have 16,000 POSs. Getnet has a lot of potential, and we think it's going to contribute, then the plan is it to be an integral part of the bank's product line. Regarding the tax rate, remember, as a general rule in Chile, the corporate tax rate is 27%, but in the bank's tax books and in Chile, in tax accounting, you still do inflation accounting. Okay? For banks, since we have a lot more capital than fixed assets, we readjust our capital in our tax books for inflation, and that produces a lower net tax rate. Okay? It produces a tax loss, the readjustment of capital due to CPI, and that's why we usually pay a rate lower than 27%. Okay?
Usually when we have inflations around 3%, the effective tax rate is more or less 21%, 22%. Second of all, there is some seasonality in our tax rates. Usually, the seasonality depends on inflation. Let's say we had the similar inflation in every quarter, just because we pay our taxes in April and we get some rebates and some tax credits usually in the second quarter. If inflation is going to be high in the second quarter plus the normal lower rate we usually pay in the second quarter, the second quarter is always lower. Then you have normal third and fourth quarter. When you add all that together, you get an average around 21%. Okay?
It's very clear, Robert. Thank you very much.
Okay.
Thank you very much. Our next question comes from Mr. Yuri Fernandes from JPMorgan. Please go ahead, sir. Your line is open.
Thank you, everybody. A very clear presentation as always, very good results. I had a first question, a follow-up on Getnet. You provided in the presentation some expectations for market share, right? Like 15% market share in two years. My question is, market share in TPV or market share in POS? I guess the focus of you is basically SMEs, right? The strategy for Getnet. Maybe, I don't know if this 15% is volumes, but we may have more than 15% of the number of POS. No, this 15% is the number of POS, as we are discussing the presentation, and maybe our share in TPV maybe is likely lower. That's the first. A follow-up here too is, what is your market share in SMEs in Chile?
Maybe, this is the target for two years, but maybe the potential for Getnet is bigger just based on your natural, let's call natural market share on SMEs, right? That's the first question. My second question is also related to fees. Very good guidance, I understood that most of the growth will come from the credit business, Getnet. I guess that's the avenue for growth and fees. What else can we expect here? What can you help us to understand on other potential upsides on investment, insurance? I know you disclosed some new ventures like Klare, things like that, I think they are pretty small still. What else can drive fees up? Thank you.
Okay. Thank you, Yuri, for your question. About Getnet, the target of 15%, I would say that more the number of POS is like number of merchants. As you said, we are targeting SMEs, it's, say, the number of shops in the system. It's not about volumes, it's not about big retailers at this moment, on this stage of the development. We don't target one company with 1,000 POS. We would rather go for 1,000 shops with one POS each. That's the target. You're right, the ambition in the medium to long term is much higher than 15%. 15% is the near term, the initial target. We are doing extremely well in that sense. We think that we can reach the 15% market share really fast.
As you said, in order to go with our natural market share in SMEs, there is an opportunity and room for growing beyond that, but it's just a matter of timing, if you want. The 15% was the initial milestone, and we'll definitely want to go higher than that when we reach that first milestone.
I'll take the other one. Okay, regarding SMEs, our market share, there aren't clear figures
Regarding SMEs, every bank kind of defines it differently. Remember, we define SMEs are companies that sell less than CLP 2 billion. That's more or less $3 million a year. It's a very small company. Okay? We calculate, we believe we have the largest in Chile. When we look at our FOGAPE market share, it was around 23%, and I think that's a good indication. We have 23%-25% of the SME market, what we define as a SME. That is kind of the natural market share. Obviously, there's all types of businesses there. Not all are merchants, but that is definitely our market share we believe in small businesses in the local market. Regarding fees, remember in this quarter, we made CLP 75 billion. Last year was pre-pandemic, we don't grow.
If you take that CLP 75 billion and you just put a similar figure for the second, third, and fourth quarter, you more or less get to the 8%. Okay? That's why in this quarter, we think was really good in fees, because we're still in the pandemic, kind of, and we're already at the same levels of fees we had at the beginning of last year, which was just the very beginning of the pandemic. Where are we seeing growth? Obviously the new products are key. Obviously, Getnet, it will slowly begin to generate. I think in the beginning, more importantly, will be Santander Life. Okay? Santander Life is going to be generating fees because Santander Life has a really interesting model which tends to monetize rather quickly. Okay?
Life is rather hassle-free in the sense they don't charge you for transferring, they don't put you maximum amounts, they don't charge you for minimum balance. You can take out money free from the ATM and whatever. They charge you a fixed fee of around CLP 2,400. Okay? The more Life clients we get, the more fees, that flat fee that we earn. Okay? Life has a very good product, very simple, doesn't have hidden fees, it just has this flat fee. The more we grow Santander Life, we're going to get an initial fee, which really helps to cover costs. As we said today, the marginal cost, the marginal direct cost for Life is around CLP 800. Okay? On top of that, clients who are approved can get a credit card.
They'll be able to get loans there, the credit card will have merchants, et cetera. I think Life will be a big growth. The other big growth should come from the insurance brokerage. I think this quarter kind of showed that. I think the big star in the quarter was Autocompara. Autocompara is this platform, it's semi-digital because you can buy fully on board, but a lot of people have questions and need help, so it does have a good call center platform as well. Autocompara is a clear example of how when car sales started to rebound in Chile, a part of the pension fund withdrawals went to buy cars and we were the third auto insurance. Okay. Asset management should improve. Remember that as rates rise, rising rates has different effects.
It should improve the average fee for some of our funds. People should start to invest again in more risky funds. Finally, our corporate banking had a weak fee last year. This year, even though we haven't seen loan growth, we did start to see interesting movements from different types of projects and investment banking. There was an initial wave of business, and that generated fees. That's where we think fees will come from growth. I think there's. That's why we have that guidance.
No, super clear, Robert. If I may just a follow-up here on fees. Any plan of the banking opening a marketplace or something like that, like a more retail view? As you said in the presentation, you are going for-
Yeah.
A platform kind of model for some businesses like the insurance broker, like the auto broker, all those things. Any idea?
Yeah.
On marketplace, something like that?
Yes. That's the trend we are trying to follow in the medium to long term, in trying to go to a more platform strategy. Insurance is maybe the most evident example because we cannot underwrite insurances. Basically, we always try to go as open as possible. We do have this partnership with Zurich, but also when we went to with Klare, we began opening the platform. The idea, we are doing some pilots and experiments more on the, if you want, retail part, to selling by phones and all other products, offering at the same time financing for that, or miles with our loyalty program. Yes, the idea is to go into that direction and trying to get into the platform dynamics of the revenue. We are at the early stage, and we'll try to progress in that direction.
We have something called the Work Café community. The Work Café will have this market platform, okay? Where people can, our SMEs can start to offer, and we offer the SMEs other products. That's really important. We have the Work Café community, which we've talked a little bit about in the digital talk, but I think when the reopening comes, we'll have that a little more advanced.
That's why what Robert was saying about Life is crucial. Because at the end, you can talk about a marketplace platform or ecosystem. At the end, the ecosystem of Life is growing extremely fast. We have now more than 500,000 new clients. Robert was talking about fees, like the management fee that the people pay for that account. Also when you look, and we can show the breakdown in the future. When you look at what's happening in cards fee, the debit card fees are growing extremely fast, and that's because people, their Life account, they are using their cards to pay. Then you look into the potential of all the dollar ecosystem, and there are a huge wave of immigration now in Chile, or there has been in the last few years.
When you look at that people and the potential for them to have one account in Chilean peso, one account in U.S. dollar and all that, the transactions that you have in that, combining those two accounts. At the end, it's building different building blocks and trying to build the ecosystem as big and as wider as possible.
Perfect, guys. Very clear. Thank you very much again.
Thank you very much. Our next question comes from Mr. Alonso García from Credit Suisse. Please go ahead, sir, your line is open.
Hello, good morning, everyone. Thank you for taking my question. My question is on cost of risk. One is clarification. Just wanted to clarify that you are not including reversal of provisions in your 1.1%-1.2% guidance. Second on cost of risk would be, what level do you see as a normalized cost of risk going forward, considering that you see attractive growth in retail, in the retail segment in coming years with Santander Life under different initiatives. Will this 1.1%-1.2% be like a new normal going forward? My second question on ROE is very similar to that point on cost of risk. After 16%-18% ROE this year, what do you see as a sustainable level for ROE going forward? Thank you.
Yes. Thank you, Alonso, for your questions. In terms of cost of risk, yeah, we are not including any reversal of voluntary provisions into that guidance. About the level after, or the underlying level of cost of risk, we think that this area where we are now, 1.1%-1.2%, is similar to what we had pre-COVID. We don't expect the normal new cost of risk to be after the crisis, and then to be above that. It could be in line or slightly lower, we think. Why is that? We think that after the crisis, people will tend to be a bit more conservative in their approach to borrowing and to savings and all that. We think that after the crisis, the cost of risk should be in line or slightly below the one we had pre-COVID.
Even though that's still to be seen, and it's a bit early to make a strong call, but that's our view so far. In terms of ROE, yes, the range from 16%-18% is relatively big, and it depends on many moving parts, one of them being the inflation for this year and the final effect from the VAT reduction. We think that the long-term ROE can be in that range, too. It would be consistent with the target for this year, and also looking further.
That's very clear. Thank you very much.
Thank you very much. Our final voice question comes from Mr. Brian Flores from Citibank. Please go ahead, sir, your line is open.
Thank you. Just a quick follow-up on the level of sustainable ROE. Can you repeat the figure? I had some interference. Thank you.
Yeah. I said that the 16%-18% range for this year can also be the long-term range ROE.
Perfect. Thank you.
Thank you very much. We are seeing no further voice questions at this point. I'll pass the line back to Santander Chile 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.