Banco Santander-Chile

NYSE:BSAC

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Banco Santander-Chile Q1 2022 Results Conference Call on the 29th of April 2022. [Operator Instructions] The format of the call will be a presentation by the management team followed by a question-and-answer session.

So without further ado, I would now like to pass the line to Mr. Emiliano Muratore. Please go ahead, sir.

[Emiliano Muratore, executive]

Good morning, everyone. Welcome to Banco Santander-Chile's First Quarter 2022 Results Webcast and Conference Call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Managing Director and Head of Investor Relations; and Claudio Soto, Chief Economist. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy.

The bank has continued with a strong momentum into 2022, with a strong ROE and solid financial performance, thanks to our successful digital strategy, strong client growth, sound asset quality and impressive efficiency levels.

As many of you probably already noticed, in first quarter 2022, Chilean banks moved one step closer to adopting full IFRS accounting standards, with the adoption of IFRS 9 for evaluating financial instruments, with the exception of the methodology for calculating expected loss for credit risk which is still calculated using the expected loss models defined by our regulator, the CMF.

At the same time, all Chilean banks have adopted a new financial statement preparation standard. We have restated our historical figures to match the current format, and this restatement is included in our new management commentary. If you have further questions about this new format, don't hesitate to contact our IR department for help.

And regarding to our results, Claudio Soto will start with an update on the macro scenario beginning on Slide 4.

[Claudio Soto, executive]

Thank you, Emiliano.

Since our last call, the pandemic in Chile has receded substantially. New [ contaminations ] have dropped and sanitary restrictions have been lifted. After finishing 2022, 2021 significantly above trend, the economy has begun its slowdown a little earlier than expected. Monetary tightening by the Central Bank in the second part of last year, a fiscal construction this year and political uncertainty have led to a moderation in domestic demand. These factors will continue pushing down the economy during the rest of 2022. A negative impact on global growth of the war in Ukraine will also affect local activity. All in all, we expect GDP will grow by 1.5% this year, as seen on Slide 5.

Inflation has continued increasing. The Consumer Price Index, CPI, rose 9.4% year-on-year in March, its highest rate in more than 10 years. Behind this phenomenon were global pressures, a relatively weak currency and second round effects from past price hikes in the context of still abundant domestic liquidity. March figures also reflected the impact of the war in Ukraine, which pushed up local food prices. We estimate inflation will keep rising until the end of the second quarter, reaching 11%. After that, it should begin slowing down as global prices soften and local activity moderates.

The Central Bank has continued tightening its monetary policy by raising the monetary policy rate 150 basis points in March, reaching 7%. We expect the monetary authority will increase its policy rate by 100 basis points in the meeting next week and eventually by another 50 basis points in June. This implies finishing the high-teens cycle with a monetary policy rate at 8.5%. After that, they should keep the rate on hold during the third quarter and begin cutting by the end of the year as inflation and activity slows down.

After the [indiscernible] in the monetary policy report published at the end of March, short and medium-term market rates [ adjusted ] downward. However, the high CPI in March, which significantly surprised on the upside, they increased again.

The new government has ratified its compromise to fulfill the current budget, which implies a substantial contraction in targeted expenditure this year. While it might be detrimental to growth, that will help contain inflationary pressures and a further increase in public debt. Recently, the Ministry of Finance announced an agreement with the Central Bank -- sorry, with the Central Workers Union to increase the minimum wage by 13% and a package of cash transferred to low income families for about USD 350 million to compensate for the loss of value of the currency. This package will be financed through adjustment in the budget without increasing total expenditure.

Also, 3 legal initiatives allowing for new pension fund resource were rejected in Congress. Similar proposals should not be discussed anytime soon, reducing the risk of market new liquidity injections.

Going to Slide 6, the constitutional process is in its later stages. There are still key elements to be defined and adjustments to the draft in the so-called Harmonization Commission. Brexit referendum, which will take place on September 4 of this year, will reduce uncertainty. However, in case that the approved option wins, there will still be a large transition period to implement the new constitution. In case that the reject option wins, it is likely that important amendment to the current constitution will take place.

[Robert Moreno Heimlich, executive]

Thank you, Claudio. We will now move on to Slide 7 to focus on the evolution of our various digital initiatives this year.

On Slide 8, we summarize our main initiatives, which have been key elements for our recent success in client growth and satisfaction. In the next few slides, I will update the evolution of the main initiatives outlined here.

On Slide 9, we begin with our most successful initiative, which is Santander Life. Client growth continued strong with Santander Life, reaching over 970,000 clients, an increase of 60% year-over-year. Life's active clients, defined as those in which Santander is their main bank, increased 52% year-on-year. And loyal clients, which are those that are active and are also profitably using a majority of Life products, rose 49% year-over-year.

Santander Life's clients are also rapidly monetizing, with gross income of around $30 million in the first quarter, a 62% increase compared to the same quarter of last year. Demand deposits remained high at $1.1 billion, a 53% increase, surpassing by many times the amount clients have deposited in similar competing platforms.

On the loan side, Life clients had a total of $310 million in consumer loans, increasing 38% in consumer credit and 98% in credit card loans. These clients are also beginning to purchase other products, such as mutual funds and time deposits which have grown 77% year-on-year and 161%, respectively.

Slide 10, we show the high growth Superdigital is obtaining. Superdigital is a prepaid digital product aimed at the unbanked who seek a low-cost bank account. Superdigital clients have grown 95% year-over-year, reaching over 292,000 clients. This growth has been helped by alliances with companies such as Cornershop and Uber. Furthermore, in January 2022, the Todas Conectadas' initiatives by the UN with Mastercard and Microsoft, that looks to offer tools for women entrepreneurs, chose Superdigital as their financial platform for Chile.

Getnet, our acquiring business, continues to grow successfully as shown on Slide 11. Getnet was efficiently launched in February last year and has sold over 88,000 POS and over 500 mobile POSs, which were recently launched. 91% of Getnet's clients or SMEs are target clients. Today, Getnet already has a market share greater than 20% in POSs with around $300 billion in monthly sales through these machines. This product has been quick to monetize, generating $3 billion fees in the first quarter alone. We expect Getnet to break even by the end of this year.

On Slide 12, we showcased our 2 most recent digital initiatives to help support micro entrepreneurs, Prospera and Cuenta Pyme Life. These 2 projects are in the incubation stage as we test different platforms and customer segments.

Prospera is for non-incorporated individuals that need a current account for their business, mainly focused on transactionality. With a small monthly fee and a onetime payment for the mobile POS, these clients are rapidly using multiple products from the get-go, with access to a current account with unlimited free transfers and no limits to their monthly balance.

Cuenta Pyme Life has a slightly different focus targeting incorporated companies that need a current account. The government has a program called Tu Empresa En Un Dia with around 365 companies created each day fully online. These same companies then seek a product that can be also opened online and will not require a history with a bank nor minimum sales. Cuenta Pyme Life builds on the same successful platform we have created for individuals and also focuses mainly on transactionality as well as responsible lending opportunities in the future.

As can be seen on Slide 13, we continue to lead our main competitors in NPS. In the first quarter, our NPS dipped slightly, mainly our app as we rolled out a new version, which caused some kind of disruptions, but will allow us to give a better service with heightened cybersecurity.

On Slide 14, we show how these different efforts are translating into record client growth. We surpassed the $4.1 million client mark in the first quarter with a bright outlook for the rest of the year. Since mid-2020, total clients have increased 20%. In the same period, total digital clients have grown 51.7%. The main driver of client growth has been checking account openings through Santander Life. As a result, our market share in a number of current accounts has increased to 28.9% or 234 basis points higher than 12 months ago.

On Slide 15, you see how the bank continues its process of transforming the branch network, focusing on the Work Cafe model and closing less productive branches. As the pandemic has eased, we have begun to reopen the cafe and co-working areas, welcoming in again both customers and noncustomers to these unique branches. Overall, our brand strategy, coupled with our digital initiative, is driving an important rise in productivity, with volumes per point of sale increasing 12.2% year-over-year and volumes per employee increasing 10.8% year-over-year.

The Work Cafe Community already has 155,000 members and 5,500 shops. In the last year, this platform helped over 25,000 shops or businesses create their website and shopping cart to sell online.

Moving forward to Slide 16. We show our 10 responsible banking commitments, which we spoke about in our Santander ESG talk last year and their progress. We continue to make significant progress in all of our commitments, increasing the amount of women and leadership positions and lowering the gender gap -- pay gap. In the social front, we have financially empowered 1.8 million people as of March and supported 281,000 through our community programs.

On the environmental front, we already eliminated all of our single-use plastics. And as of March 2022, we have close to $470 million in sustainable financing on our loan book. We have also already begun construction of our solar power plants.

On Slide 17, we can see how our efforts are being recognized by the various ESG indexes. In the fourth quarter, the Dow Jones Sustainability Index confirmed us as the only bank in Chile to qualify for the Emerging Markets Index. And also this quarter, MSCI affirmed its A rating for the bank.

Skipping ahead to Slide 19, we will now take a look at our financial results. As a reminder, as of January, Chilean banks have now incorporated IFRS 9 except for the expected loss models for provisions. Chilean banks also adopted a new format for the balance sheet and income statement. The financial information for 2021 has been adjusted to include these changes for comparison purposes.

In the first quarter of 2022, net income attributable to shareholders increased 29.5% compared to the same quarter of 2021 and totaled CLP 235.7 billion. Our ROE in the quarter reached 25.6%. These strong results were mainly driven by our client activities as reflected in the increase of 21.5% in the net income from our business segments, which excludes taxes, voluntary provisions and the impact of inflation on results. All business segments saw better results with retail banking net contribution increasing 10.7%, middle market results up 23.5% and CIB's profits rising 54%.

On Slide 20, we review our loan book, which grew 0.6% Q-on-Q and 6.8% year-over-year. Loans to individuals increased 9.7% year-over-year and 1.9% Q-over-Q, with loan growth in this segment being driven by high-yielding auto loans, which grew 57.5% year-over-year.

Mortgage loans grew 11.7% year-over-year and 2.0% Q-over-Q. Growth in this product was mainly driven by the higher U.S. inflation rates that resulted in a positive translation impact on mortgage loans. New mortgage loan originations fell as inflation and rates increased in the quarter.

During the quarter, our CIB segment continue to experience strong growth of 6.5% Q-over-Q as the economy reopened and large corporate sought funding in the form of corporate loans as the bond market remained illiquid.

On Slide 21, we show the evolution of our funding mix. Total deposits increased 2.8% year-over-year and decreased 3.5% Q-over-Q. After a strong increase in noninterest-bearing deposits in previous quarters due to the success of our digital platforms and the excess liquidity from State aid and pension fund withdrawals, we have started to see our clients either spend their liquidity or shifted to time deposits as rates rise. The decrease in retail demand deposits was partially offset by the 30% Q-on-Q increase in corporate demand deposits.

As a result, time deposits only increased 0.3% Q-over-Q. Despite this proactive stance regarding funding costs, we still expect average funding cost to continue to rise as the monetary policy rate continues to go up. These higher rates will be eventually transferred to our loan book. But given that our interest-bearing liabilities have a shorter duration than our interest-earning assets, funding costs will go up first.

Moving on to Slide 24. We can see how the movements of volumes, rates and inflation resulted in flat NII year-on-year growth. The bank's net interest margin reached 3.7% in 1Q '22 compared to 4.4% in the fourth quarter and 4.1% in the same quarter of last year. During the quarter, inflation remained strong with a U.S. variation of 2.4%. This high inflation was offset by the aggressive hike in the monetary policy rate by the Central Bank in the quarter, which deteriorated our funding costs and mix.

Moving on to asset quality on Slide 23. We show how the evolution of asset quality remained solid in the quarter. The NPL and impaired loan ratio decreased to 4.5% and 1.2%, respectively. The coverage ratio of NPLs also remained high at 279%. These positive trends were seen equally across the different products.

As you can see on Slide 24, these positive asset quality indicators led to a cost of credit of 0.8% for the first quarter of 2022. During the quarter, the Board did not recognize reverse any additional or voluntary provisions.

Non-net interest income trends were also very positive in the quarter as we show on Slide 25. Fee income increased 17.1% year-over-year, driven by higher client activity and the growth of our client base, which led to growth across most products, thanks to our digital strategy with our key products such as Life, Getnet and our Insurtech platforms. Compared to the fourth quarter of '21, fees showed some seasonality with less card transactions due to the vacation season in Chile.

Financial transactions also continued to show strong client demand with high appetite for our treasury products accompanied with positive results from our ALM division. With this, our noninterest income increased 37% year-over-year and 29% Q-over-Q.

As shown on Slide 26, operating expense growth remained controlled during the quarter despite the higher inflation rates, and our efficiency ratio reached 37.8% in the quarter. Personnel expenses remained stable year-over-year, and administrative expenses only grew 3.6% year-over-year despite the record high inflation levels. This exemplary cost control has mainly been driven by our digital investments, which is leading to higher productivity and efficiency levels.

Bank is currently carrying out its $260 digital -- million digital investment plan for the years 2022, 2024, mainly focused on digital initiatives, both at the front and back end of operations.

Other operating expenses decreased 11%. During the pandemic, the bank had established greater provisions for contingencies and operating risks which have not been repeated in the first quarter, leading to a fall in this item.

Okay. Moving on to Slide 27. We now analyze our capital. As a reminder, since year-end 2021, we are now reporting under BIS III. At the end of the first quarter, the bank reported a core equity ratio of 10.4% and a total BIS ratio of 16.8%. Our fully loaded ratios were 10.7% and 17.1%, respectively.

During the quarter, the CMF set our Pillar 2 requirement at 0%. All-in and considering all the different buffers, the minimum CET1 ratio we must achieve by 2025 is 9.5%, and we are currently above this level. On the slide, it says 10, but that's a typo, it's 9.5.

As a result of the strong capital levels and as we show on Slide 28, we paid in April of this year our highest dividend ever of CLP 2.47 per share, 50% higher than last year's dividend with an attractive yield of 5.5%.

Finally, on Slide 29, we are updating our guidance for 2022. Strong results in the first quarter and the evolving macroeconomic situation have led us to update our guidance for this year. Our base scenario now assumes a GDP growth of around 1.5%, with an inflation rate of around 9%. This should lead to loan growth of 8% to 10%. We have lowered our outlook for NIMs to 3.5 to 3.7 on the back of short-term interest rates rising more quickly than previously estimated. On the other hand, our non-NII revenue should rise 10% to 15%, and our outlook for the cost of risk remains unchanged at 0.9% to 1%.

Given our efforts with our digital strategy, we expect cost to grow below inflation. All in, we expect an ROE of 21% to 22% for 2022.

With this, I finish my presentation, and we will now gladly answer any questions you may have.

[Operator]

[Operator Instructions]

Our first question comes from Mr. Tito Labarta from Goldman Sachs.

[Daer Labarta, analyst]

I guess my question is on your margins a little bit. Just -- I mean, I know you lowered the guidance a bit because of the higher interest rates. But just I think maybe on how that's going to evolve. So do you think you kind of see that immediate impact next quarter from the higher rates and maybe some more margin pressure in the short term? But let's say if inflation remains high, is there maybe some upside to that margin outlook, and particularly maybe thinking going into 2023, not sure your inflation expectations for then. But how do you think that can continue to evolve just kind of the dynamics you've seen in inflation and policy rates? If you can give some more color on that would be helpful.

[Emiliano Muratore, executive]

Tito, this is Emiliano. Thank you for your questions. I mean, regarding the future for NIMs. I mean second quarter shouldn't be, let's say, significantly worse, it could be around the first quarter because we already know the March inflation which was high, was like 1.9% for the month. So that's going to be a significant part of the U.S. variation for the second quarter. We'll know next week the CBI for April. And so the second quarter shouldn't be, let's say, bad in that sense.

The second half could be the one bringing the headwinds and how hard the headwinds will be will depend on the combination of where the inflation stays and how the Central Bank reacts to that. So the trending down of NIM should come in the second half. I mean maybe with the third quarter being dependent on the timing of the Central Bank decisions on most of the inflation figures but maybe the fourth quarter -- the third quarter could be the bottom and then in the fourth quarter when the Central Bank might start cutting rates, depending on the evolution of inflation and activity, we can start to see like a rebound in that sense.

For 2023, the big question will be the combination of interest rates and inflation. So if inflation stays high, it will be positive for us. I mean, maybe the Central Bank will be more modest in cutting rates in that environment. But the overall effect will depend on the reaction of the central bank to the inflation.

[Daer Labarta, analyst]

Great. That's helpful. And then looking at your inflation forecast 2023 at 4.4% with the monetary policy rate coming down to [ 4.75% ]. In that scenario, how do you think about your margins? Should that -- can it remain stable with, say, the second half of 2022?

[Emiliano Muratore, executive]

This year, yes. I mean the question mark for there is where we end up this year, but let's say that combination could be stable around where we are going to be this year.

[Daer Labarta, analyst]

Okay. And it'd be more stable with, say, the second half of the year when you see the pressure? Or is -- there will be a little bit of a...

[Emiliano Muratore, executive]

They'll be all for the year.

[Daer Labarta, analyst]

With the full year? All right.

[Operator]

We'll now be moving to next question from Mr. Alonso Garcia from Credit Suisse.

[Ricardo Garcia, analyst]

My question is on asset quality. I mean you've continued to report the quality metrics across the different segments. And your guidance reinforces the positive outlook for asset quality this year. But just wanted to ask, I mean how -- I mean the factors behind your feeling comfortable with asset quality remaining well under control this year in an environment of lower GDP growth, rising inflation? So I just wanted to understand your -- what you're seeing in terms of asset quality in this environment?

[Robert Moreno Heimlich, executive]

Okay. So with rising rates and higher inflation and lower growth, obviously, there could be some pressures on asset quality. So basically, what we did in the first quarter and if you look at the coverage ratios, I think it's more clear. Basically, there was some -- a little bit of increase in NPLs in consumer, but we basically use the coverage. So the coverage came down, but from like 600% to 500%. So -- and we didn't touch -- first of all, we didn't touch any voluntary additional provisions basically in consumer lending, as people have less liquidity and there might be some weakness or more than weakness, I think consumer NPLs will slowly go back to where they were before the pandemic and the social outburst, okay? But we already have it very well covered and basically, we've used coverage in that portfolio. So it really shouldn't affect too much the cost of risk.

Now in Chile, as you know, a lot of our mortgages are -- or all of our mortgages are indexed to inflation. For the back book, the increase in rates for the back book doesn't affect because the real rate is fixed over the life of the mortgage. But obviously, the variable part of people's mortgage installments comes from the increase in inflation. So I think there could be some risk there.

Now when you look at the figures in the first quarter, asset quality and mortgage did very well. But to be prudent, what we did is that we did increase the coverage in mortgage, okay? So the increase in provisions in the quarter were mainly through mortgages, even though mortgages asset quality remains very good. We increased mortgage, I think, to the highest coverage we've had in many years to 130%. That's how -- that's excluding the value of collateral. So basically, we've covered around 2 years of future potential charge-offs.

So I think that's the benefit of having high coverage that we basically tweaked a bit the coverage ratios among the different products. So that's why we're able to remain tranquil with our cost of risk outlook for the rest of the year given the current outlook for the economy, okay?

[Operator]

Our next question comes from Mr. Ernesto Gabilondo from Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

My first question is also in terms of loan growth and in terms of macro expectations. So I agree with you on your expectations of 1.5% GDP growth for this year. However, if we go beyond that and start looking to 2023, Well, you still as a country need to have a pension reform, then you need to have a tax reform to finance it and then you're having tighter fiscal and monetary policies. So just wondering how do you see the GDP growth expectation for 2023? And how can that translate into loan growth?

[Claudio Soto, executive]

Yes. I'm Claudio Soto will take the first part of the question on growth expectation. We expect GDP between -- growing between 0% and 1% next year, that is a little bit above to what the Central Bank has from its latest inflation report. What is behind that growth figure? Well, we expect the monetary policy to begin losing its monetary policy by the end of this year as long as inflation slows down. And also this year, the fiscal adjustment, the strong fiscal adjustment is occurring this year. This year, we have a very tight fiscal policy, but we expect the government will be able to start increasing the budget expenditure by next year, and that will help supporting the economy. That is basically what we have behind our estimate of growth GDP. And in terms of the loan growth?

[Emiliano Muratore, executive]

Yes. I mean with what Claudio mentioned in terms of nominal GDP being like in the mid-single digits, I mean I think that the multiplier of loan growth to that, it's not so easy to predict. I mean, considering where we are coming from, the pandemic, the deleverage from the families, the pension fund withdrawals. So I would say that we can be around also mid-single digits maybe from 5% to 7% nominal growth of loans coming from that 0% to 1% GDP growth and inflation being in the 4% to 5% range.

[Ernesto María Gabilondo Márquez, analyst]

Perfect. And then my second question is on your ROE. We have seen -- you have increased the target to 21%, 22% for this year. However, at some point, we should expect total inflation. So where do you see the sustainable or long-term ROE?

[Emiliano Muratore, executive]

Yes. I mean, we gave our 18% to 19% range for long-term ROE. I mean we haven't changed that. And in the first half of -- I mean, first quarter and first half considering the inflation levels of that are showing above 20% ROE that we don't -- we haven't changed our long-term expectations in terms of ROE because at the end, after this high inflation period, the inflation will converge and then the Central Bank will take rates down again, and we can go back to, let's say, a more normalized scenario of this 18% to 19% range.

[Operator]

We will be moving to the next caller. The next question comes from Mr. Carlos Gomez from HSBC.

[Carlos Gomez-Lopez, analyst]

I want to ask you about the impact of the withdrawals from the pension fund on your business now and in the future. From what we read, there has already been an increase in long-term mortgage rates and a reduction in the pensions of the banks length. How do you see that evolving? And how do you see that impacting loan growth in the long run?

And second, I wanted to ask about the decline in deposits that we have seen in the last 2 quarters. Again, I think it is related to the withdrawal from the pension funds. Do you see that continuing? Any [ standing ] concern for the next 2 or 3 years?

[Emiliano Muratore, executive]

Carlos, thank you for your question. I mean, so regarding the impact of the pension funds withdrawals, I think we are still seeing the effects of the withdrawals in the sense that still there's a significant amount of liquidity around the system in terms of demand deposits and time deposits. And also, as you said, the fact that the pension funds needed to sell long-term assets in the market pushed long-term interest rates up. That made mortgages -- new mortgages more expensive. And so that reduced the demand for mortgages. And I would think that, that's going to be the case for a while.

I mean we don't see long-term rates fall in sharply, so the level of new origination in mortgages for the next, I don't know, 12 to 24 months definitely will be lower than the ones we had in the past. It's also true that in nominal terms, the mortgage portfolio will be growing with inflation. So in terms of the nominal size of the portfolio, you can still have growth to the high single-digit numbers, let's say, supported by inflation.

And also, the effect of the withdrawals was like a reduction in consumer loans demand. I mean people have liquidity so they are demanding less credit. That's why you see like the numbers for us and for the system in consumer loans are modest or even falling. But that will change after people use the money that they have, and we see that happening more towards the end of this year, maybe next year.

What we are seeing in terms of deposit behavior is that we are seeing people first spending part of the money they have in their accounts and also, let's say, considering the higher opportunity cost that the level of rates is creating, people are shifting from demand deposit to time deposit basically because now the yields and the rates are more attractive to them. So that's part of our pressure on NIMs, but it's not a concern in terms of the funding of the business because we keep the deposits. I mean it's more expensive on a time deposit format than on a checking account, but we still have the funding for our business.

And going to the first part with the demand on the mortgage business being slower than in the past, we don't foresee significant pressure in the long-term funding needs for us. We still have access to the domestic market, which is, let's say, still there in a certain sense. And also the international markets have proven to be very accessible for us funding. It's not a concern for the near future.

[Operator]

Our next question comes from Mr. Yuri Fernandes from JPMorgan.

[Yuri Fernandes, analyst]

Congrats on the very strong ROE. I had a quick one regarding the number of clients. We saw some stabilization regarding loyal clients and digital clients. So just would like to know your view here for this year. Do you think like the growth will slow down or you see more competition for clients? Or is this just seasonal like first Q versus [ fourth ] Q? So that's the first one.

And a follow-up on funding. I totally understand that like fund is not an issue regarding the amount, but how do you see them in post [ COVID ], right? Because they are still -- at a very high level, although they decreased this quarter, they are still, I don't know, 62% of your total deposits. And when you go back to the historical demand deposits, they were around 40% of Santander total deposits. So how quickly do you believe demand deposits will shrink? Do you think this is like a 1, 2 years -- again, assuming all new pension withdraw in Chile, right? Like how long do you think like pension -- sorry, deposits may kind of normalize because this has been a very good tailwind for banks. And I don't know, like we should wait at 7 and more, we could see like a quick shift here on the deposits. So I just want to hear your thoughts on this.

[Robert Moreno Heimlich, executive]

Okay. So regarding clients, and I think there's various factors. One is seasonality. The summer months always slow down a bit. The second factor is, we did do some changes as we're always upgrading our site, our app. And there was a little bit of disruption there. We're always trying to boost cybersecurity. And I think that affected in the very short term our NPS, which we saw, and the growth of digital clients. But I think it was momentary and now I think things are back on track.

And the third, it's true that there's definitely more competition. There's a lot of good platforms I think we're still leading. In any case, we should see a client growth, especially digital client growth start to recover as people adjust to the new format and the new cybersecurity features. So we're already seeing in March and April, that recovering. With the new products through Life, especially like Cuenta Pyme Life, I think that's going to be another game changer that's going to slowly gain momentum and getting that continues to do well.

So overall, I think there's going to be more competition. We're going to start launching some new things in the next few quarters. All of that should give the boost again to client growth. So we still think that's going to move forward after a slight dip, especially on the digital side. It was basically in the month of January and February, March, there was already a pickup.

[Emiliano Muratore, executive]

And regarding the mix of deposit or the trends for deposits going forward. I think it's first important to mention that apart from the pension fund withdrawals and, let's say, all the fiscal hubs, also, we did a significant improvement in all the transactional business with company. So if you go to Slide 21, you can see there that the evolution of the retail part individuals and the corporate part, middle market and SCIB quite different. So we are still keeping a significant part of the demand deposits coming from corporates, basically because apart from the, let's say, reasonable optimization of their margins and their financial business, that money is more related to the kind of, let's say, loyalty and the transactional relationship with the bank. That still is strong, and we are positive going forward.

It's also important to mention going to your mix between time deposits and demand deposits going to some years before now that also they are the system and also we had a significant pool of time deposit coming from institutional investors and in pension funds. I mean that's not going to come back. So I think that it's a long-term effect where the share of demand deposits for us as total deposits will stay higher than the one we -- it was in the past.

So going to your question, we don't see -- we don't see like in -- especially in the retail part, the opportunity cost and also the usage of the liquidity from household will put a headwind in demand deposit growth going forward and maybe some shift to time deposit. But then when you see the overall including the corporate segments, we don't see a fast or significant shift. Rates are already at 7%. So we -- let's say, a big part of that opportunity cost shift has already passed. And so we are not concerned of having a rapid or sharp mix shift from demand to time deposits in an overall deposit base during the next months.

[Yuri Fernandes, analyst]

No, no, super clear. The concern was inflation coming down and then deposits come down, right, that would be painful. And also congrats on the new release. That's my final comment here. It was very good, like the new informations are in each of the release.

[Operator]

Our next question comes from Mr. Juan Recalde from Scotiabank.

[Juan Recalde, analyst]

The question is regarding fee income growth. We saw a very strong growth of around 17% year-on-year in the quarter. I was wondering how sustainable is this? And what is your expectation for fee income growth for 2022 and 2023?

[Robert Moreno Heimlich, executive]

Okay. Yes. So we've had, I think, probably one of the more better parts of our results have been the positive effects of all the growth in clients and in transactionality on fee growth. We've seen fees grow across the board. And I think that's good news for the rest of the year.

As a side now, remember that, and as we mentioned in the management commentary and in the script, we have to begin to absorb beginning in April, the new interchange fees. And that's going to cost us this year CLP 29 billion. So basically April through December. So that will probably lower a bit the ongoing growth of fees, especially through cards, even though it should have a slight benefit for Getnet. So overall, fee growth will probably not continue the trends we saw in the first quarter because of this. Even though the other -- the non-credit card-related products, we should continue to have a very good year because of the increase in transactionality, okay?

So the 17% growth in fees will probably come down by the end of the year as we absorb this $29 billion to levels probably around 8% or 9%, okay? And then next year, once we have this absorbed, we should go back to growth in the teens because the client growth, the transactionality should continue to push fees. So this is kind of like a one-off that we absorbed this year and then we should continue growing.

So we have -- even though there are some pressure on margins, as we mentioned, I think the fee part is quite clear. And the other thing is that the treasury income -- treasury in the first quarter was like $57 billion. We had very good client treasury, nonclient, which was a loss last year. Nonclient treasury should be more or less positive or are not repeating the loss.

So when you add in fees and treasury, I mean that's basically non-net interest income. That should grow around 15% this year, okay? So I think that's one of the positives we have this year. So even though we have to adopt the interchange fee, the rest of the fee products should grow well, and our treasury should also have a good year, and that should continue through next year as well.

[Operator]

We have received 3 text questions. I will read them out individually. The first one is any potential regulatory risk for the bank to flag pertaining to constitutional convention?

[Claudio Soto, executive]

Well, in terms of the constitutional convention, it is hard to foresee right now what are the specific implication for the financial industry in general. The constitution is defining political wins, it's defining our list of social rights and the working of the political system and the legislative and judiciary system. So it's hard to think right now to specific impact on the financial industry.

Regarding other type of regulations, one of the things that is going on right now is the fintech regulation that has been discussing with Congress and another regulation to have a consolidated debt repository to that is something that has been discussed for many years already in Chile, but now it's advancing in congress.

[Operator]

The next text question, considering the current economic slowdown, how do you see loan growth evolving in 2022? Especially in the retail segment, do you think loan growth of 8% to 10% is feasible in this context?

[Emiliano Muratore, executive]

Yes. I think so and part because inflation went up and so everything that's denominated in U.S. So really, we didn't really change our nominal loan growth forecast too much versus the previous guidance. What really changed was the inflation went up. So the real loan growth is actually around almost 0. So basically, loans will still -- we're not seeing terrific numbers in loan originations. Except for auto loans, the rest of the consumer loans are kind of stalled. New mortgage originations have fallen. And there is some interesting activity in the [indiscernible] loan growth. But I think really the most recent push is translation gain to the U.S., okay, to higher inflation.

[Operator]

The next text question is about inflation again. So how much inflation is too much? In the sense that even higher inflation is good for market margins, there must be a point where it begins to affect customers, lower consumption, higher delinquency, et cetera?

[Claudio Soto, executive]

That's a difficult question to ask. We think that we are still at levels of inflation where those pressures exist but are still manageable by our clients and by ourselves. And we also have, let's say, trust in the Central Bank doing their work in helping the inflation to converge also the GDP forecast for the economy should help to have inflation converging. And the one coming from abroad, the imported inflation coming from all the situation in Ukraine and all the supply chain disruptions. That also should fade away in the future, maybe not so soon. But yes, a bit away from now.

[Operator]

Okay. We have a final voice question from an individual analyst. This is Mike George, we'll open the microphone.

Okay. I believe we have no further questions then at this point. I'll pass the line back to the management team for the concluding remarks.

[Emiliano Muratore, executive]

Okay. Thank you, Michael. Thank you all very much for taking the time to participate in today's conference call. We look forward to speaking with you soon again. Goodbye.

[Operator]

Thank you very much. This concludes our call for today. We'll now be closing all the lines. Thank you, and have a great weekend. Bye-bye.