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. So 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 Q1 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 So to, 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 4. Then we will go into the results of the bank during the quarter. And finally, we will explain how we continue to progress in our digital strategy and other initiatives.
So now I will hand the call over to Claudio.
Thank you, Emiliano. During the last quarter, Chile has confronted another wave of contagion, Reaching a new peak in the 1st part of April. However, the vaccination process has proceeded fast. By mid April, the country had vaccinated more than 7,500,000 people and almost 40% of the target population has already received 2 shots. This and the massive look downs in post 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 Q3. 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 5, 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 our export prices have also risen. A better external outlook, plus the fast deployment of vaccines has led to a substantial upward revision for growth this year. While during the Q2 we may see a mild downturn, In the Q3, the economy should recover to its pre pandemic levels.
For the year, the estimated GDP will grow between 6% 7%, a similar range as published by the InMAP's inflation report by the Central Bank. The labor market has remained weak. There are almost 1,000,000 or 10 percent fewer jobs than before the pandemic and the speed of debt creation does not go down. Despite a couple of adverse surprises, inflation is still contained due to the effect of the economy and the currency appreciation in recent months. On Slide 6, we show our forecast compensation 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 Q1 of next year. Mid 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 3rd pension fund withdrawal. We estimate the total amount that could be withdrawn is about RMB 17,000,000,000, 6 percentage conductivity, similar to the amount available in each of the previous two reforms.
According to estimate by the Central Bank of Chile, a sizable share of the resources from past pension fund withdrawals are being used to reduce debt and increased all type of savings. Less than 20% has been spent in consumption or investment. Still, there are large amount in banking accounts that could easily be translated into expenditure. That poses a natural risk for both activity and inflation. In the short run, the required portfolio adjustment by AFP We will view some financial price volatility.
Interest rate will move up as we have seen in recent days and the Chile could appreciate. The Central Bank has announced a liquidity program to contain such volatility. In particular, We will reopen the special securities buyback program for bank bonds and term deposits with resources for up to $10,000,000,000 Also, the repo window for banks will be extended until August 2021. This week, the Chamber of Debrief approved a constitutional amendment for a new transitory wealth tax on the super rich and a reduction in DNP. The bid has now to go to senate.
If finally approved, the reduction in VAT would have an important downward Short term import prices indeed 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 8. Net income in the first Quarter of 2021 totaled MXN182 1,000,000,000 and increased 26.2% compared to the Q1 of last year. It is important to point out that these results include an additional provision of RMB24 1,000,000,000 recognized in order to increase coverage ratios, Considering the uncertainty still surrounding the potential impact on credit quality of the COVID-nineteen crisis, The higher net interest income, a rebound in fees and improvement in asset quality and cost control drove our results.
The bank's Return on equity surpassed 20% for the 2nd consecutive quarter. One of the most important drivers of our strong results in 2020 Can be seen on Slide 9 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%. U. S.
Inflation was strong at 1.1%, although lower than the previous quarter. Going forward, We expect U. S. Inflation for the quarter to average around $0.8 to $0.9 per quarter. This should be positive for NIMs, But 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 and evolution of NIMs and NII, especially since the onset of the pandemic. Our NIM outpaced all of our main competitors. Our NII increased 10 point 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 an increasing 6.2% Q over 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 CLP deposits, Improving our time deposit funding costs in nominal pesos both in absolute terms and compared to our main peers.
In the Q1, the average quarterly cost of our CLP 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 over Q. Loan growth remains subdued due to the ongoing lockdowns and high liquidity levels, both at the corporate and personal level. Loan growth was mainly driven by the SME segment, which increased 1.5% Q over Q and 20.8 percent year over year.
In the quarter, MXN241 1,000,000,000 were dispersed under the new Fogape Rekdiva program. In January, the government launched a second phase of Fogape called Fogape Rekdiva with some important differences compared to the initial program. For GAPRE ReACTIVA loans can be used to invest in new projects and not just for working capital. The average yearly rate for a Progape Reactive alone is approximately slightly above 8% compared to 3.5% for the original Progape And maturities can reach up to 8 years. Loans to individuals decreased increased 2% year over year and 1.4% Q over Q.
On the other hand, consumer loans decreased 2.3% Q over Q And 11.4% as ongoing lockdowns and withdrawals from pension funds has kept sorry, 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 percent Q over Q. Profits from our auto lending business were up 129% year over year. Mortgage loans increased 8.7% year over year and 2.1% Q over Q.
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 and 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 activities. 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% 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 2 57%. 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 forgape loans were under normal payment schedules and only 14% still had a payment holiday with an overdue ratio of 1%. It is important to point out that for the FOGAPREXIVA loans we gave in the Q1, 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 you 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 MXN24 1,000,000,000 in additional provisions. We now have in our balance sheet MXN150 1,000,000,000 and voluntary provisions to cover unexpected events in 2021.
We have not yet reversed any additional provisions. It's 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 R25 $1,000,000,000 to R29 $1,000,000,000 in provisions in April. Including this, the cost of credit for the Q2 is still expected to be around 1% as all asset quality indicators remain robust. Therefore, we will have a small jump in provisions in April, normalizing in May June and the full quarter shouldn't be any major rise.
For the full year, we have improved our guidance from 1.2 to 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 9.3q overq At 1.4 year over year, fee growth was driven by strong opening of checking accounts, greater client loyalty, The 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 prepared for the reopening of the economy. On Slide 20, you see how this low growth of cost is leading to greater productivity.
We continue forward with our $250,000,000 investment plan for the years 2021 to 2023 mainly focused on digital initiatives and automatization. In the quarter, the bank continued the process of transforming its branch network, focusing on the work cafe model and closing less productive branches that have low client 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% 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 included 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 Ps. 502,000,000,000 of subordinated debt from Tier 2 to Tier 1. At the same time, core capital now includes minority interest. 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 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 Santander Life continues to be the main contributor to client growth. Total Life clients increased 2 39% year over year and in the Q1 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 the 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 5 times daily including weekends. On Slide 27, we show how our digital insurance brokerage platforms also had a positive quarter. Claire continued to expand its product offer and now brokers online health and dental insurance and signed alliances with various new insurance companies. Auto Compara 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 3 times 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 standard, but also SASB, placing us at the forefront of ESG transparency. Santander Chile won 1st 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 how we have 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 We made progress in our ESG funding strategy.
In the 1st months of this year, we issued 2 Women SME bonds for a total of $150,000,000 The objective of these transactions It's to contribute to the growth of small and medium sized businesses with annual sales less than Ps. 2,000,000,000 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 Q1. So 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 the U. S. 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 The velocity at which short term rates begin to rise, the rate of change in the loan mix and the incorporation of lower VAT 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 for 1.3% to 1.4% to a level between 1.1% and 1.2 Percent. 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% to 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% to 39%. Finally, all of this said, we have risen our ROE expectations for this year from 15% to 16% to 16% to 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 and A session. If you are dialed in via the web, you may also ask a voice question. We will now 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 Garibondo from Bank of America. Please go ahead, sir.
Hi, good morning, Emiliano, Robert and Claudio. Thanks My first question is on the economic and political outlook. So there is a pretty helpful forward withdrawal on pension funds, which Sorry, I don't know where there's music. Can you hear me?
Ernesto, please go ahead with your question.
Okay. So I was thinking about these forward 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 that a potential for withdrawal It would be equivalent to 6 years of savings. So I remember that the social unrest happened because of the low savings Juanicipal, Vitara.
So I will appreciate your thoughts on this. And then on the other hand, We're seeing very good economic activity, as you pointed out, high commodity prices. Charlie, Chile is facing the faster vaccination in the region. So why did you decided to bill Additional provision charges and 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. So thank you, Ernesto, for your question. Claudio, can you please cover the first question?
Yes. Sorry, I had an interruption. Can you summarize the question from me? Sorry.
Of course, Tomas, if you want to, the top of the 4th country fund withdrawal, which is a fact Sorry, the 3rd. And you 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 leading a lot of structural problems in the savings and the pensions, Fiscal,
so how you think
all of that is going to factor out in growth and on the political side? And then there's another question about provisions, which we'll answer.
Yes. Okay. So we had experienced 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 3rd Q4 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, the sales regained sales went up very, very strong at almost 25% year on year, which is reflecting that consumption has been relatively Robust in this month. And the withdrawal will provide support To income so that you can sustain a relatively solid consumption going forward. It's true though, and these have 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. So And also a lot of money in current accounts. So 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 faster coverage of the economy, yes, the pandemic condition allowed it.
And also, you might have some inflationary pressures in the short run. Now in the medium term, of course, this pension fund withdrawals might affect the 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. And 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 beginning term with savings. We saw that in the short run, Savings have been declining. Although I have to say that the high corporate 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% 4%, which is not particularly high considering the amount of Fiscal expenditure that has been deployed to help families and companies.
So 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 report, you might have an outcome that at least can sustain the savings that we have now.
So thank you, Claudio. So going to your second question, Ernesto, about provisions. And basically, The reason why we took the voluntary provisions in the Q1 is because, as we said in the past, We don't within the crisis, it's still going on. I mean, this is not finished yet. And Before the pandemic in Q1 of last year, we were basically having a 1% cost of risk around that.
So we don't feel comfortable to even though the behavior of the portfolio is being really good, I mean, we don't feel Comfortable at this moment of the crisis to keep showing cost of risk significantly below the pre COVID levels. I mean, 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 2 thirds of that of, let's say, natural or underlying cost of risk can be added 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. So basically, we are going to be Around 1% again with this one off, so no need to build voluntary provisions in order To be around 1%. So 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 hub to households and families. So I would I think in the near future is I would roll out results 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 It's a conservative approach, but I would think that the way to do banking is this, I mean, to be conservative and we don't even though vaccination is doing Remi, well, it's also true that the number of cases and new cases is still in the middle of the 3rd wave, and we are Expecting those numbers to go down, so and vaccination should be the big support For recovery and opening in the second half, that 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, But you're expecting a reduction in VIP and that could help to improve consumption and that of course So translating to higher consumer loan growth, you want to be clear on that. And then you pointed out that it could also bring higher inflation and then that eventually could lead to higher rates.
So How are your thoughts on NIMs in the next quarters? And if you experience at some point higher rate, what will be the impact in the short term?
Okay. So in terms of NIMs, basically, we were expecting flat NIMs For the rest of the year, I mean, like around 4% because as you said, there are some Tailwinds regarding NIMs. I mean, first, it's like inflation. I mean, not only in Chile, but also in In the rest of the country, there is a kind of upwards pressure to inflation. And also all this Consumption fever that we have seen out of the pensions, withdrawals and also all the help From the government and 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. So that's kind of flattening of the curve It's going to hurt our NIM, but that's we don't see that happening this year. It's more an issue for 2022. But the VAT reduction, the potential VAT reduction that it's a piece of it's a law or a project that it's in Congress that It came out this week. That's going to have a short term downwards pressure to inflation.
I mean, basically, because prices Go down because the VAT is lower. It's difficult now to see how the final outcome Of the law it's going to be, it's true that as it is right now, it's the fiscal impact is significant, I mean, around like 6,000,000,000 Dollar a year, so it's difficult to say at this moment what's going to come out from Congress as the final approach. So but it's going to have this 2 stages impact. I mean, the first, if prices would be Lower and down. Maybe by the Q3, I mean, we should expect that impact on UF for the Q3 of this year.
But then in the medium to long run, it's, let's say, a stimulus to consumption To families and that should sustain prices as the second derivative of the move. And so that's why we are seeing that potential risk to NIM for the rest of the year. It's I would say it's a one off first because it's the law is proposing like a temporary reduction of VAT. So the VAT should go up back in 2023.
So in a
2 year horizon, the effect will be neutral. And also in the meanwhile, we are going to have this upwards pressure to inflation because of Hi, Constancia. So last week, I would say that the 4% for the rest of the year was pretty like Fair expectation to have. Now it might be lower for this year because of the bad reduction, but that should recover From 2022 and onwards, in order to also compensate the potential Headwind coming from interest rate going up, I mean, 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, Let's say, in the 12 to 24 months horizon.
Very helpful. Thank you very much.
Thank you very much. Our next question comes from Ms. Neha Agarwalah 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, is there any regulatory changes that you anticipate which could impact your fee income growth? I believe you mentioned that as a threat to your guidance.
Hi, yes, hello. Yes, 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, but there is this noise. Specifically regarding fees, I would say one piece of legislation everyone should be looking out is potential fixing of the interchange fees, Okay. For credit cards, we don't I think that the law is rather technical. The good news is it's in quite technical hands.
And so 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 Card fees from credit cards, but 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. And obviously, this market is probably going to grow a lot because of GetNet, because of And people taking on more cards, both debit and credit because of online banking, digital, etcetera. So That's it basically.
The main thing regarding fees is to keep an eye out on how this legislation evolves. And as we said, that's something that Every day, we recommend looking at the newspapers and see what comes up and to follow this.
And to build on Robert's comments, it's I mean, it's true that a potential fix of the interchange fee It could impact the fee revenue, but it's also true that we are going to we'll need to review the whole economics of the Card issuance business, and so I think we can also manage that impact on the revenue expenses and on the fee expense In the sense of the kind of mileage programs or the loyalty programs that we have With our cars and our clients, those are sustained on the current environment of interchange fee. If the interchange fees change changes, so we'll need to review the full economics of the business.
That's very clear. Thank you so much. Thank Our next question comes from Mr. San Diego, your line is open. Please go ahead.
Hello. Can you hear me?
Yes. Yes.
Please go ahead.
Okay. Thank you. Yes, thank you for the presentation and Congratulations for the nice results on the Q1. I have a couple of questions. The first one, your guidance on loan growth Shows a low single digit, but accelerating as the year progresses.
I just want to go deeper on the consumer segment because 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? Or are you Looking to have a kind of a more aggressive strategy or risk appetite or you have more risk appetite? And 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, Sebastian. So yes, regarding loan growth, as we said, we're talking about low single digits for the full year. So we're not really expecting a huge increase in loans, but 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%.
So 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. But 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. And one important point is that we have seen some in general, people have not been using their credit card. So And whether people use their credit card, obviously, for many different things, but there's 2 or 3 items that are usually very, very big.
And one of them is traveling, okay? So when you see people start to travel more, reopening, people start to use more of their credit card. So we think that's going to be a major thing. And the other thing is that we've already seen a pickup in auto loans, okay? 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.
So 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.
And about your second questions about ROE and the impact of leverage there, Amit, it's you're right. I mean, if you look at the pure from a pure accounting point of view, Leverage is higher and ROA has been going down. But when you look at on a risk weighted look, That is not the point. That's not the case. I mean, our CET1 ratio is actually, I would say, In the higher part or higher range of the last, I don't know, 4, 5 years, I mean, between 10.5% to 11%.
So Going forward, we don't expect the leverage to go down. I mean, we don't need it from the to comply with Basel III. So it's not going to be an issue for us. So the reason for that Accounting higher leverage, if you want, is that today, we have definitely a higher number of low or 0 weight in assets, basically government bonds, I mean 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 like reduce that part of the balance sheet even though the waiting Capital consumption, it's 0.
So it's more on an opportunistic stance, if you want. But on a risk a risk weighted basis, I mean, we don't expect leverage to play a role in ROE going forward. I mean, it should be neutral from where we are now.
Perfect. Very clear. And if I may, just to Askew, one last thing on efficiency. You brought down again your efficiency target to a Pretty much a very good level of 38%, 39%. Is this something coming from new initiatives?
Can we see even a lower number? Or would you say that, that will be probably the bottom that can be achieved?
Okay. So what we brought down, we improved our efficiency outlook because I think cost growth has been lower than we expected and income growth was I think the cost growth line will continue. We put there in line with inflation around 3%, 3.5%. Well, in the end, so I think that's pretty 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. But on the cost side, if you look at our numbers, you see that personnel expenses Have been relatively flat.
And 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. So 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, launching of GetNet and so forth. So How far can it go?
Well, in the end, it really depends a little bit more on the income side. But 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 Ivoet Friedmann from Citibank. Please go ahead, sir. Your line is open.
Thank you, guys. Can you hear me well? Yes.
Yes. Please go ahead.
Perfect. Thank you very much for the opportunity. So 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. And you mentioned That GetNet might be positively impacted in the new regulations that affect interchange.
But Until when can we really count with GetNet revenues consolidated by Santander Chile? As you know, GetNet is being spun off in Brazil The headquarters in Spain launched this global platform. So how would Chile fit this global strategy? This is the first question. And 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 Q1, it was slightly higher. So could you expect even lower than 20% rates for different parties? Thank you. Okay. So regarding fee income and Getnet, well, We're obviously well aware of the situation in Brazil with Gernet and the spin off.
Remember, we just started this business. 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 and any other future operation down way down the road, obviously, we'll be Done with taking in the interest of all shareholders. So for now, obviously, there is no plan of a spin off here in Chile. I can't speak farther down on the road, but today idea is to grow again that 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, and that's The situation we're managing today regarding Genet, which once again is doing quite well, It just started and it has even though Chile is not small, but we have 16,000 POS. So again, that has a lot of potential and we think it's going to contribute and then the plan is 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 Chilean and tax accounting, you still do inflation accounting, okay? And 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 that we adjust in the capital due to CPI. And that's why we usually pay a rate lower than 27%, okay? And usually when we have inflations around 3%, the effective tax rate is more or less 21%, 2022.
2nd of all, there is some seasonality in our tax rate. Usually, the seasonality depends on inflation. But 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 and then you have normal 3rd and 4th quarter. So when you add all of that together, you get an average around 21, okay? That's very clear, Robert.
Thank you very much.
Okay. Thank you very much. Our next question comes from Mr. Yui Fernandez from JPMorgan. Please go ahead, sir.
Your line is open.
Thank you, everybody. Very clear presentation as always and Very good results. I have a first question, a follow-up on GetNet. You're providing the presentation some expectations for market share, right, like 15% Market share in 3 years. My question is market share in TPV or market share in POS life?
Because I guess the focus of you, This question is, right, the strategy for GetNet. So maybe I don't know if this 15% is, well, volumes, but we may have more than 15% of the number of POS or no, the 15% is the number of POS that we are discussing in the presentation and maybe Our share in TPV may be slightly lower. So that's the first. And a follow-up here too is, what is the market share in SMEs In Chile, because maybe, okay, this is a target for 3 years, but maybe the potential for GetNet is bigger just based on your natural, let's call, natural market share On SMEs, right? So that's the first question.
My second question is also related to fees, very good guidance. And I understood that most of The growth will come from the credit business, it gets mad, like I guess that's dead for growth in fees. But what else can we Glad to hear like what can you help us to understand on other potential upside on investment, insurance. I know you disclosed some new ventures like Clari, things like that, but I think they are pretty small still. But what else
Okay. So thank you, Juhi, for your question. About GetNet, I mean, the target of 15% is I would say that more than number of POS is like number of merchants. We are as you said, we are targeting SMEs. So it's, say, the number of shops in the system It's not about volumes and it's not about big retailers at this moment on this stage of the development.
So we don't target 1 company with, I don't know, 1,000 POS. I mean, we would rather go for 1,000 shops with 1 POS each. So that's the target. And you're right, I mean, the ambition in the medium to long term is much higher than 15%. I mean, 15% is like the near term, The initial target, I mean, we are doing extremely well in that sense.
I mean, we think that we can reach the 15 And market share are really fast. And as you said, in order to go with our natural market share in SMEs, There is an opportunity in Broom for growing beyond that, but it's just a matter Of timing, if you want. I mean, 15% was like the initial milestone, and we'll definitely want to go Higher than that when we reached that first milestone.
I'll take the other one. Okay. So regarding SMEs, our market It's hard to there aren't clear figures regarding SMEs and every bank kind of defines it differently. But our remember, we define SMEs are companies that sell less than Ps. 2,000,000,000, that's more or less $3,000,000 a year.
So It's a very small company, okay? And we calculate we believe we have the largest in Chile. And when we look at kind of like our FOGAP market share, it was around 23%. And I think that's a good indication. Like we have like 23% to 25% Of the SME market, what we define as SME.
That is kind of the natural market share. Obviously, there is all types of business. They're not all our merchants, but that is definitely our market share we believe in small businesses in the local market. Regarding fees, so remember, in this quarter, we made $75,000,000,000 last year was pre pandemic. So We don't grow, but if you take that $75,000,000,000 and you just kind of put a similar figure for the second, 3rd and 4th quarter, you more or less get to the 8%.
Okay. So that's why this quarter, we think we're really good in fees because we're still in the pandemic kind of And they were already at the same levels of fees we had at the beginning of last year, which was just the very beginning of the pandemic. And where are we seeing growth? Well, obviously, the new products are key. Obviously, GetNet will slowly begin To start generate, but I think in the beginning, more importantly, will be Santander Life, okay.
Santander Life He's going to be generating fees because Santander Life has a really interesting model, which tends to monetize rather quickly, okay? So Life is rather hassle free in the sense they don't charge for transferring. They don't put you maximum allowance. They don't charge you for minimum balance. But you can take out money free from the ATM and whatever, but they charge you a fixed fee of around MXN 2,400, okay?
So the more live clients we get, the more fees that flat fee that we earned, okay. So Life has a very good product, very simple, doesn't have hidden fees, it just has its flat fee. So 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 MXN 800, okay? On top of that, Life will then Clients who are approved can get a credit card, so then they'll be able to get loans there.
The credit card will also have merchants, Etcetera. So I think life will be a big growth. And the other big growth should come from the insurance brokerage. And I think this quarter kind of showed that. I think the big star in the quarter was Alto Compare.
Alto Compare is this platform, it's semi digital because you can I fully onboard, but a lot of people have questions and need help? So it does have a good call center platform as well. But Carlos Compara is a clear example of how when car sales started to rebound in Chile, A part of the pension fund withdrawal is going to buy cars and we were deferred out of insurance, okay. Asset management should improve. I remember that as rates rise, rising rates has different effects, but it should improve The average fee for some of our funds and people should start to invest again in more risky.
And finally, Our corporate banking had a weak fee last year. This year, we haven't seen loan growth. We did start to see Interesting movements on different types of projects and investment banking. There was like an initial wave of business And that generated fees. So that's where we think fees will come from growth.
I think there's And that's why we have that guidance. That's super clear, Robert. If I may, just a follow-up here on FIS. Any plan of the banking opening a marketplace or something like that, like a more retail view? Because like as you said in the presentation, Like you are going for a platform kind of model for some business, like the insurance broker, like the auto broker, all those things.
Any idea of the market's delay or something like that?
Well, yes, I mean, that's the trend we are Trying to follow in the medium to long term and trying to go to a more platform strategy and insurance is that Maybe the most evident example because we cannot underwrite the insurances. So basically, we always try to go As open as possible, we do have this partnership with Zurich, but also when we went to with Claire, we began Opening the platform and so the idea, we are doing some pilots and experiments more on the If you want retail part, I mean, to selling by phones and all other products offering at the Same time financing for that and or miles with our loyalty program. So yes, I mean, the idea is To go into that direction and trying to get into the platform dynamics Of the revenue, but we are at the early stage and we'll try to progress in that direction.
Yes, we have something called the Work Cafe community. The Work Cafe will have this Market platform, okay. So where people can our SMEs can offer, start to offer and we offer SMEs other products. So that's really important. We have the Work Cafe 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.
And that's why what Robert was saying about life is crucial, I mean, because at the end, you can talk about marketplace platform or ecosystem. And at the end, that ecosystem of life is Growing extremely fast. I mean, we have now more than 500,000 new clients. And Robert was talking about Fees like the management fee that people pay for that account, but also when you look at we're going to 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 live account, they are using their cards To pay and then you look into the potential of all the dollar ecosystem and there are a huge wave of immigration now In Chile, there has been in the last few years.
So when you look at that people and the potential for them to have One account in peso, one account in dollar and all that the transactions that you have in that combining those two accounts. So at the end, it's building Different building blocks and trying to build the ecosystem as big and as Wider as possible.
Thank you very much. Our next question comes from Mr. Alonso Garcia from Credit Suisse. Please go ahead, sir. Your line is open.
Hello, good morning everyone. Thank you for taking my question. So my question is on cost of risk. One is a clarification. Just wanted to clarify that you are not including reversal of provisions in your 1.2 sorry, 1.1 to 1.2 guidance.
And second on cost of risk would be what level do you see as a normalized cost of risk going forward considering Do you see attractive growth in retail in the retail segment in the coming years with Santander Life and the different initiatives? So this 1.1, 1.2 be like a new normal going forward? And my second question on And ROE is very similar to that point on cost of risk coming after 16% to 18% ROE this year. What do you see
Thank you, Alsop, for your I mean, in terms of cost of risk, I mean, yes, we are not including any reversal of voluntary provisions into that So guidance, so and regarding so about The level after or the underlying level of positive risk, we think that This area where we are now at 1.1, 1.2 is similar to what we had pre COVID. And So we don't expect the normal new cost of risk to be after the price is imminent to be above that. It could be in line or slightly lower, we think. And why is that? Because 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.
So 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. And in terms of ROE, yes, I mean, The range from 16% to 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, but we think that The long term ROE can be in that range too. I mean, it would be consistent with the target For this year and also looking further.
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.
Yes. I said that the 16% to 18% range for this year can also be the long term range
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 their concluding remarks.
So thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.