Banco Santander-Chile

NYSE:BSAC

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2020 Banco Santander-Chile Earnings Conference Call. [Operator Instructions] I will now hand the conference over to the Chief Financial Officer, Mr. Emiliano Muratore. You may begin, sir.

[Emiliano Muratore, executive]

Good morning, everyone. Welcome to Banco Santander-Chile's Fourth Quarter 2020 Results Webcast and Conference Call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Managing Director of Investor Relations; and Sindy Olea from our Economic Research team. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy.

During the quarter, Chile has begun a gradual reopening, which so far has been working well to control the health situation. We have a lot to discuss today with various important messages. Sindy will start with an update on the economy and the macro scenario. Then we will go into the results of the bank during the quarter. And finally, we will explain how we continue to progress with our digital strategy and other initiatives. So now I will hand the call over to Sindy.

[Sindy Olea Guajardo, executive]

Thank you, Emiliano. As you can see on Slide 4, following May's peak of the contagion, the situation in Chile rather improved, although in recent weeks, the cases have begun to rise again. The authority has tightened sanitary restriction, meaning much of the population, around 70% is with some lockdown levels. However, these levels still remain below the first wave.

In Slide 5, we show that in Chile, the process to vaccinate the population has begun, with over 56,000 people already vaccinated in the first weeks. With the arrival of the latest shipment, with a total of 3.8 million vaccines, starting February 3, a massive vaccination process has begun, starting with the riskiest segment such as the health workers and the elderly. It will include a broader segment of the population, trickling down to those that have close contact with people in their work. Chile has to request vaccine from all the major laboratories. The target is to have 5 million people vaccinated by the end of March and 13 million by the end of June, which accounts for 80 (sic) [ 80% ] of the objective population. Once the vaccination process allows the effect of herd immunity, which requires that between 65% and 70% of the population has been inoculated, the ability to begin a sustained recovery towards levels close to those before the pandemic.

On Slide 6, we can see the Chilean economy continued to recovery during the fourth quarter and showed mixed progress across sectors. The recovery of the retail sector was supported by the pension plan withdrawal liquidity [ structure ]. In December, the second withdrawal of pension fund was approved and involved a liquidity increase of around USD 14 billion for [ household full ] at the end of January and boosted consumption at the end of the year. Business confidence was up to optimistic levels, especially in the industrial sector, and employment has also continued to improve, led by informal jobs. This has led to some postponed projects to resume their process with more projects expected for 2021 than previously. As long as the vaccination process advance, the recovery should continue throughout the rest of the year.

Finally, as you can see on Slide 7, the economy will grow 4.5% this year and inflation will remain muted, as a large gap in the economy will restrain inflationary pressures. With this, we expect it to be below 3% targets during 2021 and converge towards this level by 2022. Under this scenario, the Central Bank has kept its monetary policy rate at 0.5% and have signaled that it will keep it at this level for a long period. Also, the Central Bank Board announced a new stage of the loan growth conditional facility by USD 10 billion for [ sickened ] loans starting March 2021. This in order to finance FOGAPE loans [ of sterid ] to further help the SMEs, this time with less restriction in terms of interest rates, terms and use of proceeds. Overall, we expect a slow growth during the first quarter of 2021 and a strong recovery in the second half of the year, assuming that at least 80% of the target population, around 13 million people, will be vaccinated during this period.

[Emiliano Muratore, executive]

Thank you, Sindy. And we will now move on to explain our strong balance sheet and results, which showed good, strong trends in the quarter.

Moving on to Slide 9. Net income in 4Q '20 totaled CLP 183 billion and increased 74.5% compared to the 3Q '20 and 57.2% compared to the fourth quarter '19. It is important to point out that 4Q results include an additional voluntary provision of CLP 50 billion recognized in order to increase coverage ratios, considering the uncertainty still surrounding the potential impacts on credit quality of the COVID crisis. The higher net interest income, a rebound in fees and improvement in asset quality and cost control drove our results in the quarter. The bank's return on average equity reached 20.4% in 4Q. With these strong results in the last quarter, net income for the year for 2020 totaled CLP 517 billion and decreased 6.3%, with an ROE of 14.5% in the year. This places us as one of the best-performing banks in the region during last year.

As you can see on Slide 10, we also significantly outperformed our local peers in 2020. Not only did we regain our leading position in total earnings, but we also led our peers in ROE, net interest margin and efficiency. One of the most important drivers of our strong results in 2020, as can be visualized in Slide 11, was net interest income. Despite asset growth being focused on lower-yielding and less risky assets during the year, we still managed to obtain a 12.5% increase in NII in 2020, with a flat NIM that closed the year at 4%. Specifically, in the fourth quarter, the variation of the UF of 1.3% also helped to boost margins to 4.3% in third quarter.

As we can see on Slide 12, despite facing similar market conditions, the bank outperformed the market in evolution of NIMs and NII. Our NII increased at a rate of 4x that of the system, excluding Santander. On average, the NIM in the banking system fell 40 basis points compared to a fairly stable NIM for us. There were various reasons for this positive trend. Positive evolution of the bank's funding mix, correct management of our inflation gap and the strong growth of interest-earning assets.

As we can see and observe on Slide 13, noninterest-bearing demand deposits increased 41% year-over-year due to high growth of retail checking accounts, continued strength in the bank's transactional banking services for companies, and the positive impact of the second withdrawal from pension funds.

On Slide 14, 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, increasing 9.1% Q-on-Q and 55.2% year-on-year. Simultaneously, the bank continued to enforce strict price discipline in its CLP deposits, improving our time deposit funding cost in nominal pesos in absolute terms and compared to our main peers. In the fourth quarter, the average quarterly cost of our CLP time deposits was 0.49 (sic) [ 0.44 ], falling below the monetary policy rate and opening a gap of 20 basis points compared to our main peers.

On Slide 15, we review loan growth. Total loans increased 5% year-on-year and decreased 1.4% quarter-on-quarter. In the fourth quarter, there was a slight uptick in higher-yielding retail lending. Consumer loans increased 0.3% Q-on-Q, which showed early signs of recovery after various quarters contracting. Mortgage loans increased 10.2% year-on-year and 2.5% quarter-on-quarter. Long-term interest rates have remained at attractive levels, contributing to the sustained growth, especially among high income earners. The UF inflation rate of 1.3 in the quarter also resulted in a positive translation impact on mortgage loans as most of these loans are denominated in UF. Loans to SMEs increased 0.4% Q-on-Q, driven by FOGAPE loans. This program was launched at the beginning of May. Since then, demand has gradually been decelerating. The state guarantee covers on average around 78% of these loans. Loan demand remains sluggish in middle market and corporate segments. At the same time, the 9.2% Q-on-Q appreciation of the Chilean peso against the dollar resulted in a translation loss of those loans denominated in dollars. Our strategy with these segments continues to focus on the overall profitability of clients, focusing on non-lending activities as well as lending. As mentioned, this has resulted in an improved funding mix, with high growth of demand deposits driving net interest income in the middle market and CIB, which increased 16% and 16.4%, respectively, despite the decrease in lending.

Moving on to asset quality in Slide 16. In this slide, we show the breakdown of asset quality by loan product. The NPL and impaired loan ratio continue to show positive trends after the expiration of payment holidays, especially in consumer and mortgage loans. Only in commercial loans was there a slight uptick in impaired loans following the expiration of payment holidays. This mainly occurred in the non-FOGAPE loans. For this reason, the bank reassigned voluntary provisions from the consumer and mortgage loan book to the commercial loan book, thus increasing coverage. The coverage ratio for the loan book reached 227%. The NPL and impaired loan ratio decreased to 5.2% and 1.4% (sic) [ 1.4% and 5.2% ], respectively.

Regarding the evolution of payment holidays on Slide 17, we show the evolution of these through December, which until now has been encouraging. As of year-end 2020, 33% of total loans were extended -- 33% of loans that were extended payment holiday and CLP 2 trillion of FOGAPE loans were disbursed. Of these amounts, the payment holiday for CLP 8.4 trillion has expired at year-end and only 1% were overdue. This included the expiration of a large portion of reprogrammed mortgage loans. In October and November, a total of CLP 4.6 trillion of mortgage loans with payment holidays expired with an early non-performance ratio of 1%. FOGAPE payment holidays began to expire in December, where 50% had to begin payment. The payment behavior was also above expectations, with only 0.4% delayed on their payments at the end of December.

As we can see on Slide 18, by the end of February, 99% of the grace periods will have expired. So far in January, the positive trends we saw through December have continued.

On Slide 19, we show how these good asset quality indicators have led to a lower cost of credit in the fourth quarter of 1%. This includes, in the quarter, CLP 50 billion of additional provisions. With this expense, our year-to-date cost of credit reached 1.48%, and we now have in our balance sheet CLP 126 billion in voluntary provisions to cover unexpected events in 2021.

In Slide 20, we take a quick look at noninterest income trends. Fee income increased 12% compared to third quarter. Fees in the quarter showed healthy signs of pickup after low quarters affected by ongoing lockdowns, lower economic activity and regulatory impacts. This was mainly led by card, checking account and insurance brokerage fees.

Card fees increased 9.8% quarter-on-quarter and 35% year-over-year due to the switch away from the 3-part interchange fee model commonly used in Chile, to the 4-part interchange fee model used more frequently worldwide. The growth of our Life debit cards and Superdigital prepaid card, as well as a strong increase in online shopping, also drove card usage and fees in the quarter. Insurance brokerage fees had a strong recovery, increasing 16.6% Q-on-Q after the bank has been heavily pushing its Insurtech platforms. In April, Klare was officially launched and the bank's online auto insurance brokerage business, Autocompara, is also gaining momentum. And in the second half of this year, we became the #1 auto insurance broker in Chile. The results from financial transactions totaled CLP 4 billion in the quarter. During the quarter, as we mentioned, the peso appreciated 9.2%. This resulted in lower provision expense for loans denominated in dollars when translated to pesos. As this result is hedged, the counterbalance to the lower provision of CLP 14 billion is recognized in this line item. The bank also continued to carry out various liability management operations to improve the cost of funds, with an initial loss recognized here, but a higher expected savings in interest expense going forward.

The rebound in revenues in the quarter was also accompanied by good cost control, as shown on Slide 21. Operating expenses increased 2.5% year-on-year and decreased 1% quarter-on-quarter with the bank's efficiency ratio reaching 38.3% in the fourth quarter and 39.8% for the full year.

Regarding capital ratios on Slide 22. The bank finished the year with strong capital ratios even after the bank's second dividend payment in November. During 2020, our regulatory capital increased by 19.5% compared to a 0.1% fall in risk-weighted assets, demonstrating our disciplined approach to capital management. As a result, our core capital reached 10.7% at the end of the year compared to 2. -- sorry, 10.2% (sic) [ 10.1% ] at year-end 2019. The total BIS ratio reached 15.4% at year-end, a record high level. With these strong ratios, we can expect to maintain a good dividend policy in 2021, similar to the payout ratio we paid in '20 -- of our 2019 earnings.

In the final portion of this presentation, starting on Slide 24, we would like to update everyone on our most significant strategic and business initiatives. The strength of our digital channel was a key force in the year. During 2020, our total digital clients increased 24% and we saw a 33% increase in sales through digital channels. Our market share of digital channels among private banks increased 200 basis points to 34%. This was accompanied by a strong improvement in our NPS score to 51 points at year-end, not only improving significantly during the year, but also surpassing our main peers for the first time. This reflects that our strategy is working on all fronts in terms of client growth, client satisfaction, productivity and profitability.

As summarized in Slide 25, we continue to advance in our different strategic initiatives. During the quarter in our Santander Digital Talk, we outlined the various digital initiatives we have been working on with a two-pronged approach: run the bank and change the bank. In this event, we also announced our new investment plan of CLP 250 million for the years 2021 to 2023, which will enable us to continue expanding our digital initiatives.

Regarding our run-the-bank strategy, as we can see on Slide 26, Santander Life has been a game changer in the local banking industry due to the success of this product's Meritolife program and the Digital On-boarding process. Life is a completely digital low-cost solution for middle-income segment clients. In 2020, the amount of account opening in Life's increased 259%. Life is also rapidly monetizing its product offer. In 2020, total revenues generated by Life clients increased 115% and totaled CLP 43 billion. Due to the success of Life and the improvement in our NPS, as of November 2020, and this is on Slide 27, Santander-Chile opened more than 3x checking accounts compared to all the other banks in Chile combined. Overall market participation in checking accounts increased to 25.3% and was up from 21.7% at the end of 2019.

On Slide 28, we can also see that in the fourth quarter, the bank accelerated the branch transformation plan based on the more profitable and client-friendly Workcafe formats. At the close of 2020, we had a total of 59 Workcafés and opened 4 (sic) [ 5 ] in the quarter. In the fourth quarter, we continued to expand the Workcafe community platform and launched the Workcafé marketplace, which is aimed at becoming 1 of the largest marketplaces for entrepreneurs and small businesses in Chile. At the same time, we reduced the number of branches under the more traditional formats. In total, in 2020, we closed 5% of our branches, including 50% of our Santander Select Network.

On Slide 29, we show how our digital initiatives and changes in the branch format is resulting in large rises in productivity. Loans plus the deposit volumes per branch increased 11.5%, and loans plus deposit volumes per employee rose 13% in 2020. Our run-the-bank strategy also includes initiatives to become more sustainable through eco-friendly products.

On Slide 30, we outline the most important initiatives in this regard. One of the most important program is -- sorry, one of the most important is a program that calculates a client's carbon footprint, which can be compensated by acquiring certified carbon credits or a donation to a Chilean environmental project. In 2020, clients compensated through this program, 2,543 tonnes of CO2. Together with Santander Asset Management, we launched a green mutual fund that invests in companies with strong ESG metrics. We also launched our green mortgage loans to acquire -- that will permit persons to acquire sustainable homes with a preferential rate.

Finally, Retail Banking launched Green Benefits, a program that gives special discounts on eco-friendly products when you use your credit card. More products such as these will be launched in 2021. These initiative,s, as well as the many advances that the bank has made in the area of sustainability, has led to ample recognitions of our efforts, as can be seen on Slide 31. Our most recent Vigeo score is 58 points, which places us in 8th place among 270 retail banks globally. We are now included in all major stock indexes that track sustainable companies. In the fourth quarter, we were integrated into the Dow Jones Sustainability Index For Emerging Markets, being the only Chilean bank in this category. We are rated A in the MSCI Sustainability ratings, and we are included in the FTSE4Good Global Emerging Market Index. The Santiago Stock Exchange just announced the creation of another local index based on sustainability metrics. We are the third most weighted company in this index, that tracks Chilean companies that are leaders in ESG. Regarding our strategy to change the bank, we also made important inroads in the fourth quarter.

On Slide 32, we hype Superdigital, which continued to open a record amount of debit accounts in the quarter, providing an attractive alternative for unbanked Chileans. At the end of December 2020, we already had close to 129,000 clients. According to a study by the CMF, Superdigital has a 16% market share in account balance volumes. This shows the strength of the transactional -- transactionality features of Superdigital, which is key to the future growth and monetization of this product. The other areas of success in our change-the-bank strategy are our Insurtech platforms, as we can see on Slide 33.

Klare continues to perform well, not only financially, but the NPS score reached an all-time high of 95. Autocompara broke new record for auto insurance policies sold in November, reaffirming our leadership position in this product, driven by a 52% growth in auto insurance policies sold. This bodes well for insurance brokerage fees in 2020.

Finally, Getnet just received the go-ahead from the CMF to begin operations. So we are finally able to launch our acquiring business, which should also help to boost fees -- to boost fee revenues in coming periods.

To conclude, some guidance for 2021 on Slide 34. 2020 ended in a high note, not just because of the high profitability levels, but also due to the success of the bank in 2020 and our digital efforts, client service, management of asset quality and outpacing our peers in almost all financial metrics. This permits us to be cautiously optimistic for 2021. There are still many risks -- sorry, there are still risks, mainly the velocity of the economic recovery, the threats of new waves of COVID, political noise and as always, regulatory risks.

Taking all these factors into account, we see 2021 as a transition year. We expect loan growth to remain in the mid-single digits, accelerating as the year progresses, and with stronger growth in higher-yielding retail segments like consumer loans. We see NIMs stable, with improvements in the asset mix as a tailwind, but it will be difficult to sustain the current levels of demand deposit growth.

Given the ongoing uncertainty surrounding the pandemic, we still do not see the cost of credit in 2021 going back to pre-COVID levels of 1% just yet. An initial estimate of 1.3% to 1.4% is still more realistic at this time. Fee growth should be another important driver due to the reopening of the economy and the high growth of client growth in recent quarters. We expect costs to grow in line with inflation and an efficiency ratio slightly below 40%. Finally, all this said, we expect an ROE of 15% to 16% for 2021.

At this time, we gladly will answer any questions you may have.

[Operator]

[Operator Instructions] Our first question comes from Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Emiliano, Claudio, Robert. My first question is on fee income. Is it reasonable to expect fee income growth similar to your loan growth expectations? Or do you think it could be slightly better? And then my second question is on your operating expenses. You mentioned that you are expecting OpEx growth in line with inflation. But is this considering your transformation plan? I would just like to know that. And my last question is your expectations for net income. When interpreting your guidance, is it reasonable to reach pre-COVID levels for '21 net income?

[Emiliano Muratore, executive]

Ernesto, thank you for your question. I mean regarding fees, yes, I think that it's fair to expect to have fees growing at loan growth speed or slightly better. I mean, there are many initiatives with Life and also the acquiring business that should help us to sustain the fee growth. So I think it's -- yes, it's -- I would say, from loan growth speed to the upside. In terms of OpEx, yes, that is all-in, I mean considering the transformation plan. I mean, we always try to grow at most at inflation speed or slightly lower. So yes, that's considering all the factors. And in terms of net income, while that's, I think, 15% to 16%, ROE guidance gives you like the ballpark that could be at around the pre-COVID level that we had in 2019.

[Operator]

Our next question comes from the line of Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

Can you hear me?

[Emiliano Muratore, executive]

Yes.

[Jason Mollin, analyst]

Great. My first question is related to the 245,000 new Life clients that you showed in 2020 as well as the data on the almost 272,000 current account openings through November. And that is impressive that, that is 3x more than the rest of the banks in the system. Are these new Life clients included in the current account openings? And can you provide some color on these new clients in both, either Life and/or current accounts? Are these clients that have accounts at other banks? Are they new to the system, what kind of products are they using: deposits, loans, cards, et cetera? And is there a time period you think it takes for these clients to mature and be profitable for the bank?

[Robert Moreno Heimlich, executive]

Jason, sure. So in the total checking account figures, that includes Life, okay? So Life is a fully digital onboarding process for checking account. Superdigital is a prepaid debit card, is not there. So I think 1 of the advantages of Life is that there's various products coming out in the Chilean system to capture kind of the middle income or the unbanked population. I think the big advantage of Life is that it's a full-blown checking account and has no restrictions. It's okay, a lot of competing products in other banks put restrictions on how much you can deposit, how much you can transfer. They have fees for transferring, for transactionality. Santander Life's business model is a little bit different. We don't have any type of minimum income you need to become a Life client. But once you're in, you have a full-blown checking account, but you do have a fee. We have a fee roughly of CLP 2,000 a month. But no other type of transactionality fee and no restrictions on how much you can take out of your account per day or how much you can transfer or deposit. So I think Life in that sense, is becoming the go-to product, especially for people who do a lot of transactions, okay?

So it's been key in the opening of the current accounts. As we also show on Slide -- in the presentation on the slide of Life, I think it's Slide 26 -- given that Life clients, most of them enter the bank with a checking account. If you qualify in terms of credit behavior, Life also does an automatic credit assessment of the person. And if they qualify, they're able to access either a credit card or a line of credit. And Life also gives you merits for savings. So there is program savings through a simple money market fund. And Life also -- clients can access a mortgage, product in the rest of the bank. So Banco Santander Life is fully integrated into the rest of the bank's product. So for that reason, Life clients in 2020, generated revenues between the fee and the net interest margin, the net interest income through loans and savings, of CLP 43 billion. And last year, that figure was CLP 20 billion. So I think one of the good differentiating factors of Life compared to other products in other banks is that its business model is very low cost, but it also is a very high quality, but also it monetizes very quickly. The average client -- the client that's entering Life, or the majority, around 70% are new, okay? And I would say they're from all types. There are people who are unbanked, people who are switching over from other banks. But there's really a big group of people who, before the COVID, didn't really need a bank account or had -- or were what I would call semi-banked. They would have a simple product, maybe in the state-owned bank. And this is basically the jump up a step to really having a full-blown account. A lot of people who are taking money from the pension funds or receiving funds from direct transfers from the government, started finding a surprise that their accounts didn't -- in other banks and other products -- didn't support the amount of money that was flowing in because of these caps. While Life has no caps of how much you can deposit. So I would say, a big group of Life is semi-banked clients who are moving up a standard in the sense that Santander Life is a much better product without restrictions, it's monetizing quickly. And I would say, for example, the average Life client has an average amount in the checking account of around CLP 300,000 to CLP 400,000 per month, and that's rather high. If you look at the average in Superdigital and[ Match ] and all these other kind of prepaid debit cards, the average volume is significantly less. So the time to profitability, I would say, if they maintain these levels, plus the fee, is roughly a year or so.

[Jason Mollin, analyst]

That's very helpful. Maybe as a second question, you mentioned potential uncertainty related to regulatory changes. What kind of potential changes does Santander-Chile see in the future? And how are you preparing for them?

[Emiliano Muratore, executive]

Jason. I mean in terms of regulation, basically, the things we have some visibility on is -- well, the project that the government sent to regulate interchange fees that's uncovered. I mean it was sent by the former Minister of Finance. So we are not sure how fast it will now move with the new minister. That will potentially affect our issuer business because at the end, [ the HHMP ] is what the issuer gets, and that's -- but we -- [ I'd say what the payment ] -- we are following that. But we think that we have different levers to rebalance the business in the way we sell and we offer the products depending on the outcome of the regulation. Apart from that, well, now Basel III, as they say, is not uncertain anymore because the regulation is known, and it's starting in December, and we are still fairly like comfortable with that. We don't see an impact on our strategy and our capital strategy going forward coming from there. And apart from that, there were some indication in the Congress regarding insurances, but that, like, didn't move forward. And as Robert said, it's a matter of uncertainty of -- you never know what kind of initiatives can kind of appear in Congress or from the government. But so far, those are the things we have a relatively visibility on.

[Operator]

Our next question comes from Tito Labarta with Goldman Sachs.

[Daer Labarta, analyst]

Emiliano and Robert. My question in terms of your guidance for cost of risk of 1.3 to 1.4, just looking at this quarter, it seems a bit conservative. You mentioned you already booked a CLP 126 billion in additional provisions, you had CLP 50 billion in this quarter. If we back that out, we estimate the cost of risk was at well below 1% this quarter. So just to understand what's driving that 1.3 to 1.4. It just seems relatively conservative, given your asset quality has held up well. I mean, I understand that is likely to deteriorate from here. But just want to get a sense on what's sort of behind that increase in the cost of risk from the current levels that we saw this quarter?

[Emiliano Muratore, executive]

So Tito, thank you for the questions. Yes. I mean, I think that's basically being like conservative on -- especially thinking about the future starting, I don't know, second quarter or so. I mean, as you said, when you look at the last quarter of last year performance and what we have seen in January so far, I mean, it looks conservative. So I mean, the behavior of the portfolios are going much better than expected. The point is that it's still early in the year to assess that situation will be -- will stay as it is right now. I mean the vaccination process has just begun. And I could say that cost of risk guidance is being like prudent and factoring in a deterioration from where we are now, starting in maybe second quarter and going forward. We don't know yet if we are going to land above pre-COVID levels or in line or slightly below, but that guidance is basically being conservative on that assessment of the future.

[Daer Labarta, analyst]

Okay, Emiliano. That's helpful. And I guess maybe just a follow-up, thinking also about the ROE, the 15% to 16% guidance. I assume that's also because of the relatively high cost of risk. When do you think you can get back to normalized levels of ROE and a normalized cost of risk? Is that probably second half of the year? Is that more in 2022? And what would you say is a normalized ROE or sustainable long-term level of ROE? Can you get back to 17%, 18%? Or if you can give any rate on that, would be helpful.

[Robert Moreno Heimlich, executive]

Yes. So basically, the way we see it and we still -- everything is, as Emiliano said and as you saw in the quarter, is going in the right direction, absolutely. And remember, we did have 2 big withdrawals of the pension funds. So what we need now is the vaccinations to come through quickly, the economy to start before people -- there isn't much money for a third withdrawal, okay? So you kind of have to factor that in. Said this, if everything goes as things have gone until now, by the second half, the cost of risk should be decelerating, the ROE should be improving, okay? And we think that 2022 should be the year where we surpass or how we go back to ROEs more in line with pre-COVID levels, around 17% or so. So I think everything is going in the right direction. We just have to see how these next 6 months go. Things are going well, but there is still some uncertainty. If everything goes as planned, as Sindy laid out in the economic forecast, yes, then 2022 should be a year going back to pre-COVID ROE levels.

[Operator]

Our next question comes from Yuri Fernandes with JPMorgan.

[Yuri Fernandes, analyst]

Congratulations on the results. I had a question regarding your acquiring units like Getnet. Can you provide an update on Transbank? I think you already released you left there? But can you provide like an update on how Getnet should evolve from now? Any update on the global plan of Santander Spain to have like a global payments unit, just for us to have an update on the acquiring.

[Emiliano Muratore, executive]

Okay. Thank you, Yuri, for your question. I mean regarding acquiring, as Robert commented, the good news is that we finally got the regulatory approval. So we are ready to go. I mean the commercial launch of the product would be in the coming days. We are, let's say, still very optimistic about the future. I mean, we are targeting to reach a 15% market share in the -- maybe during 2022, in the next 12 to 24 months, I think we have there a good opportunity to complement the offering we do to our existing -- current existing clients in the SMEs and merchants, but also new clients. We definitely believe that the working capital solution we will be able to offer to our clients, including the acquiring service, is very compelling and competitive to what the market has today. In terms of the global platform, as you know, I mean, the group is developing this PagoNxt global platform. And that's -- the intention for that is to be the global backbone of the different payment solution of the group. For us, it's really positive to have that global initiative also supporting our local efforts. We began the acquiring business with Evertec as our processor, but definitely in the long run, the idea is to integrate and to be part of the global solution for the bank that, as I said, is a very competitive advantage for us that we will be a significant part of the working capital cycle for our clients with a local approach, a local product, but with supported and sustained by a global backbone developed by the group. So it's completely in line and complemented by the group's initiative.

[Yuri Fernandes, analyst]

And in the case of Brazil, we are seeing a spin-off of the acquiring activity, like it's still ongoing, but there are discussions in that, like there are studies on that regard, like to spin-off and list a new company just, like, for payments. Is there anything like that in Chile?

[Emiliano Muratore, executive]

I mean it's not in our plan. I mean, basically, today, we have nothing to spin off because the business hasn't started yet. So basically, our focus now is to grow the business, to grow fast, to gain market share. And after that, I mean, we can review and discuss what to do in terms of spin-off and ownership. But so far, our main focus is to grow the business, be in the market and grab market share.

[Operator]

Our next question comes from Alonso Garcia with Crédit Suisse.

[Ricardo Garcia, analyst]

My question is regarding dividends. I mean, last year, you paid your dividends in 2 installments as opposed to 1 previously. So my question is, for this year, should we expect a single dividend payment or 2 installments? And what's the expected timing for it? And my second question is on the NIM. I mean what are the potential sources of risk both to the downside and to the upside to your stable NIM guidance?

[Emiliano Muratore, executive]

Alonso, thank you for your questions. I'll take the first one and I'll leave Robert the second. In terms of dividends, as you said, I mean, last year, we split the payment basically because by April, when we usually pay, uncertainty about COVID and all the pandemic was really high. So we decided to split it and basically to complete the 60% payout in November with the second payment. That's a flexibility that definitely we don't want to lose. I mean, we have. I mean -- but so far, I wouldn't expect a split. I mean, for this year, with the information we have, I would expect it to go back to normal in terms of 1 payment in April -- by the end of April. But that's subject to what's going on in the macro scenario, in general, in the bank balance sheet progresses. So if at that moment, we -- I would mention, it's not we, it's basically a Board proposal and the AGM decision. But if we think that the best option is also to go with a split payment, we could do it, but it's not what we are foreseeing at this moment.

[Robert Moreno Heimlich, executive]

And regarding the NIMs, the potential downside, I would say, is the loan mix. So we are expecting loan growth to pick up. I think that's a key component, which even though we saw really good asset quality and we continue to see it, as you've seen in the fourth quarter, still loan growth really hasn't picked up at that great pace. But we are expecting eventually that to kick in, especially in the retail side. For example, last year, consumer lending fell 10%. So we think when people start to really feel more confident to go outside, to start spending again, that's going to boost retail lending, and that's going to be a potential supportive of NIMs. But if -- the more that gets behind track, that's, I would say, the main potential downside to NIMs.

On the upside, I would say it's inflation, yes? We have a 2.6% UF inflation forecast. I would say market, if you look at the Bloomberg estimates and so forth of different economists, some people are talking about UF inflation or inflation above 3%. And there's mixed feelings about inflation: on the one hand, there's a view that people are going to be reopening and spending a lot, and there's going to be some more pressure on prices. On the other hand, we do still see a lot of output gaps in Chile. That's why at this time, we're a little more conservative on our inflation outlook. But if inflation does go to work, the market is more expecting the level is about 3% for the year, that would be a nice upside for our NIMs.

That's why overall, we have more or less NIM flat. Okay?

[Ricardo Garcia, analyst]

Understood. Thanks.

[Operator]

Our next question comes from Jorg Friedemann with Citibank.

[Jorg Friedemann, analyst]

Can you hear me?

[Emiliano Muratore, executive]

Yes.

[Jorg Friedemann, analyst]

So I have a couple of doubts with regards to the numbers for provisions, because it has been impressive for me that you posted approximately CLP 90 billion of provisions this quarter, a bit less of that. And you highlighted that you had CLP 50 billion in additional provisions. When you look into the numbers, even before 2009 that were marked by the extraordinary provisions on the regulatory changes, you had levels between CLP 75 million, CLP 80 million per quarter. So how do you attribute such an improvement for the level of provisions, taking into consideration the pandemic and the NPL creation? And associated to that question, I just wonder if I know the levels of 1.3 to 1.4 of cost of risk for 2021 already take into consideration the ongoing pressures and potential additional pressures from the pandemic. So you continue constituting higher provisions to face this challenge. And especially because I could be wrong, and you correct me if I am, but recoveries are not normalized during the pandemic. They came down 10% approximately year-over-year. So they should be improving as well in 2021. So this makes your cost of risk guidance even more conservative in that regard, because the recoveries should be helping a bit more now.

[Emiliano Muratore, executive]

Jorg, when going to the cost of risk for last quarter, as you said, I mean, basically, more than half of the total charge was coming from voluntary provisions. And that, leaving aside there is one there provisions, that the level is really, really low. The reason behind that, I think it's a combination because when -- as you know, we had been getting our portfolio much more geared to middle- to high-income individual. So I would say that the overall quality of the portfolio got better sequentially in the last few years. So the underlying quality is playing a role. But also, the withdrawals from the pension funds in Chile have been a very critical driver for many of the figures we have seen in the economy as a whole, and in the terms of asset quality for banks. That's why we kind of used voluntary provisions to cover a potential deterioration. I mean -- and now going to the guidance, I would say that we are factoring in a deterioration from where we are now, not because we are seeing it, but we want to be prudent. I mean, the figures from January are in line with what we saw last quarter. It's been so far, the information is supportive and encouraging. But we don't think that the pandemic is over, and the sky is so clear. So we are, at the same time, maybe having a prudent approach to getting worse from where we are now. And also, not factoring in any reversals from voluntary provisions. I mean, I would say that, that is also like an important point to highlight, that having the voluntary provisions already built at a certain moment of time, the potential deterioration could be absorbed by reversing of those, that, that's something we are not factoring in, in the guidance. Basically, it's a guidance or covering or basically implying a potential deterioration and without using the voluntary provision as a way to counterbalance that. I don't know, Rob, if you want to add.

[Robert Moreno Heimlich, executive]

I think that's what was really important, and Emiliano said, that the idea here is to keep a high cover, okay? So I think we're in a good position. Everything is going in the correct direction. We hopefully do not want to reverse the voluntary provisions. And as we said, as the year goes on, everyone is -- we're very optimistic, obviously, about this year, but we have to see how the first half goes, okay. There's -- it can end up being a really clear sunny skies or again, the things get cloudy again. We're a -- as we said in the call, we're cautiously optimistic, but we can't rule out that something -- for example, now in Chile there are a lot more lockdowns and stuff. It's not even near what it was before, but that risk is always still there. And until we have a lot more certainty about the end of that risk, we have to be prudent.

[Emiliano Muratore, executive]

Yes. It's also, I think, worth mentioning that when you look at the profile during the year, I would say, first quarter and even the second quarter, in terms of what we are already seeing in asset quality and even in inflation in the NIMs, I mean, the first part looks relatively positive and with a higher level of certainty than then thinking about the second half, so that is the thing to consider. The first part is relatively visible and it looks encouraging, but then we don't know how the situation would evolve with all the vaccinations and the rest of the year.

[Jorg Friedemann, analyst]

That's perfect, very clear, thank you very much.

[Operator]

And our last question comes from the line of Neha Agarwala with HSBC.

[Neha Agarwala, analyst]

Congratulation on the results, Emiliano and Robert. Very quickly, could you please tell us what are the macro expectations that you're working with? And your outlook on the political situation, the elections and the change in the constitution that is ongoing? Secondly, given the strong growth in the Life product and Superdigital, Klare, is it fair to expect double-digit fee income growth in the coming years, not just in '21, but that for the medium term, we could see strong fee income growth? And lastly, any change in the competitive landscape?

[Claudio Soto, executive]

Okay, so regarding macro expectations, as we -- hold on one second, let me -- so this year, we're obviously expecting a rebound in GDP. I think this year, we're expecting GDP to grow 4.5%. Obviously, I think the external sector continues to be beneficial for Chile in terms of export growth and so forth. Also, in Chile, we also should expect a rebound in investment. I think it was on Slide 6, in one of the graphs we show on Slide 6, if you see it later on, we have something called the capital goods inventory, which is basically the large investment projects that are planned for the future. And what we're seeing this year is a big pickup in some of the projects that were kind of frozen last year, okay? I would say the only weakness here is the reopening. I think investment will slowly pick up. The external scenario doing well. But we have to see how quick the economy is able to reopen. And that is kind of the big uncertainty. But as we said, Chile has a really well-organized vaccination program, that if all goes well, that should really help to easily reach our macro expectations. And the other thing, the political situation, it's no mystery that this is an intense political year in Chile. Remember, in April, we have elections to the Constitutional Convention. We also have in April elections for mayors and governors. And then in November, we have elections for President and for Congress. So we're going to spend a lot of time at the polls. I would say here, the situation is rather calm. I think Chile has strong institutions. But obviously, you always have to keep a look out on what happens on the political front. Even I would say, compared to where we were at the end of 2019, the situation here has been much more institutionalized, and things are running their course in a democratic way, so -- but obviously, that's something you have to keep an eye on. And regarding Life and so forth, yes, I think an important thing here is that the outlook for fees, we think, is quite good. Remember last year, the first quarter of last year, it started out very strong, okay? We had like CLP 74 billion in fees in the first quarter. In the fourth quarter, we had CLP 69 billion, which was much better than the second and third. So if we continue this speeding up of fees, I think fees should be close to the low teens this year of growth, maybe between 8% and 10%. And the idea, obviously, is with the new businesses, the new initiatives, the new clients, is to keep a fee growth above loan growth for the next 3 years.

[Neha Agarwala, analyst]

Perfect. And competition, any change there?

[Claudio Soto, executive]

No, it remains very competitive. A lot of banks and nonbanks are launching their digital debit cards similar to Superdigital and somewhat similar to Life. I still think Life is superior to all those products. But definitely, we moved ahead, I think, quicker than most banks in Chile. But obviously, everyone is starting to catch up on the digital front. So that's why we have to continue innovating, because a lot of competing products are coming out now.

[Emiliano Muratore, executive]

And also, I think it's important in the competitive environment to consider the Basel III implementation that is finally going to take place, although there is a phasing period, that we see that as a point that could affect or modify growth strategy from some of the players who need to close the gap to the minimums that Basel III requires. In our case, it's a kind of non-issue. I mean, we don't see any impact on our strategy or business growth prospects. But I think that for some other players might be a thing that could -- that would make them reassess some of their segments or pricing strategy, that is going to be positive for us in the relative term.

[Operator]

And this ends our Q&A for today. I would like to turn the call back to Robert Moreno for his final remarks.

[Robert Moreno Heimlich, executive]

Okay. Thank you very much for participating. I hope to speak to you soon again during the quarter. Thanks.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's program. You may now disconnect.