Banco Santander-Chile — FY2020 Form 20-F
Reporting period: Year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB; amounts below are in Chilean pesos (Ch$), generally millions, unless otherwise stated.
Business context and financial performance
Santander-Chile is a Chile-focused commercial and retail bank. It reported the largest loan market share in Chile at 18.6%, with 17.4% of deposits. The economy contracted sharply during the COVID-19 pandemic; management cited an estimated 5–6% GDP decline in 2020 and a 10.2% unemployment rate in December.
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net interest income | Ch$1,593,848m | Ch$1,416,964m | +12.5% |
| Net fee and commission income | Ch$267,278m | Ch$287,086m | -6.9% |
| Net operating profit before loan-loss provisions | Ch$2,019,129m | Ch$1,918,743m | +5.2% |
| Loan-loss provision expense | Ch$478,264m | Ch$323,311m | +47.9% |
| Operating income | Ch$693,875m | Ch$793,542m | -12.6% |
| Net income attributable to Bank shareholders | Ch$547,614m | Ch$619,091m | -11.5% |
| Net interest margin | 3.77% | 3.95% | -0.18 percentage points |
| Return on average equity | 14.8% | 18.0% | Lower |
| Efficiency ratio | 41.9% | 41.8% | Broadly stable |
Net interest income benefited from loan growth, higher income from inflation-indexed assets, and lower funding costs. Lower-yielding commercial and mortgage lending and increased low-risk liquid assets weighed on margin. Fee income was hurt by weaker economic activity and reduced collections, insurance brokerage, and credit-line usage; card-related fees increased.
Balance sheet, cash flow, debt and liquidity
| Metric at December 31 | 2020 | 2019 |
|---|---|---|
| Total assets | Ch$55,703,223m | Ch$50,574,714m |
| Loans at amortized cost, net | Ch$33,303,100m | Ch$31,775,420m |
| Total deposits | Ch$25,142,684m | Ch$23,490,249m |
| Total liabilities | Ch$51,998,449m | Ch$47,096,211m |
| Total equity | Ch$3,704,774m | Ch$3,478,503m |
| Cash and cash equivalents | Ch$2,984,620m | Ch$3,711,334m |
Gross customer loans grew 5.1%. Demand deposits rose substantially, while time deposits declined. Issued debt instruments fell to Ch$8,204,177m from Ch$9,500,723m; interbank borrowings increased to Ch$6,328,599m from Ch$2,519,818m, including Ch$4,959,260m borrowed through Central Bank COVID-19 facilities.
Operating activities used Ch$819,993m of cash, versus generating Ch$1,855,586m in 2019. Investing activities used Ch$70,105m; financing activities provided Ch$102,090m, including proceeds from subordinated bonds partly offset by dividends. The filing states working capital is sufficient for present needs.
The reported regulatory capital-to-risk-weighted-assets ratio was 15.37% under Chilean regulatory reporting, above the Bank’s then-applicable 11% minimum. The filing also reports a core-capital-to-risk-weighted-assets ratio of about 10.7%. The LCR was 142%; the Bank’s internal NSFR estimate was 104%, while local implementation requirements remained under development. These regulatory measures use local rules and should not be confused with IFRS equity ratios.
Material changes versus prior year
- Shareholder net income fell 11.5%, despite 12.5% growth in net interest income, as credit-loss provisions rose sharply and operating expenses increased 5.6%.
- Non-performing loans declined to 1.42% of loans from 2.05%; the allowance-to-loans ratio rose to 3.02% from 2.74%. Management said asset quality remained favorable but warned that defaults could rise as payment holidays expired.
- Commercial loans expanded, supported by government-guaranteed FOGAPE lending; consumer loans contracted 10.9%, while mortgage loans grew 10.2%.
- Cash and cash equivalents declined, and the funding mix shifted toward demand deposits and Central Bank facilities. The Bank issued USD750m of senior bonds and USD200m of subordinated bonds during 2020, while also repurchasing debt.
- Employees decreased to 10,470 from 11,200, and branches to 358 from 377. ATM numbers increased to 1,199 from 1,088.
Outlook, risks, contingencies and unusual items
- Outlook: Management expected Chilean GDP growth of approximately 4–4.5% in 2021, while noting renewed COVID-19 waves, restrictions, unemployment and the expiration of payment relief could worsen credit quality. No specific earnings or margin guidance was provided.
- COVID-19 credit measures: The Bank had provided Ch$9.1tn of payment holidays; Ch$8.36tn had expired by year-end. Of expired holidays, Ch$8.24tn was reported as being serviced properly and Ch$121.85bn as defaulted or subject to further extensions. It had approved about Ch$2.1tn in FOGAPE loans; initial repayment on installments due in December was 99.6%, which management cautioned might not persist. A Ch$59bn management overlay was included in expected credit-loss provisions.
- Latam Airlines exposure: Other assets included a Ch$372.5bn (approximately US$523m) prepaid balance for frequent-flyer miles under the co-branded card program. Latam’s Chapter 11 restructuring could impair the balance; the Bank said it did not then consider impairment necessary.
- Regulation and capital: Basel III capital rules were scheduled for phased implementation from December 2021 through 2025. The Bank expected likely classification as a systemically important bank, potentially bringing additional capital requirements. Proposed legislation on prepayment fees and other banking rules could affect income; impacts were not quantified.
- Other principal risks: Chilean social and constitutional uncertainty, interest-rate, inflation and currency movements, short-term deposit reliance, concentrated time deposits, loan losses, competition and fintech, cybersecurity, operational disruption, climate-related risks and legal or regulatory proceedings.
- Legal matters and audit: The Bank reported Ch$1,024m of provisions for legal contingencies and said ordinary-course proceedings were not expected, in aggregate, to materially affect results or financial condition. PwC issued unqualified opinions on the IFRS financial statements and internal control over financial reporting; the collective expected-credit-loss allowance was identified as a critical audit matter.
- Dividend: The Ch$331,256m paid in 2020 related to 2019 earnings, distributed in two 30% tranches. The dividend on 2020 earnings had not been announced as of the report date.
Most important facts for investors to verify
- Whether post-holiday payment performance and FOGAPE repayment trends continue, and whether further credit-loss overlays or provisions are required.
- The recoverability and accounting valuation of the Ch$372.5bn Latam miles prepayment.
- How the Basel III and systemic-bank capital requirements affect capital buffers, lending capacity and dividends.
- The sustainability of net interest income and margins after unusually low funding costs and elevated demand deposits, alongside lower fee income.
- Liquidity and refinancing exposure given short-maturity deposits, Central Bank facility borrowings and 2020 cash outflows.
- The final 2020 earnings dividend proposal and approval, which were not yet disclosed in this filing.