Banco Santander Chile Q2 FY2023 Earnings Call

Hello and welcome to Banco Santander-Chile's Second Quarter 2023 Results Conference Call. We are joined today by the CFO, Emiliano Muratore; Chief Strategic Planning and Head of IR, Cristian Vicuna; and Chief Economist, Claudio Soto. I'll now hand the line over to Emiliano to begin the presentation. Please go ahead, sir.

Good morning, everyone. Welcome to Banco Santander-Chile's second quarter 2023 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Cristian Vicuna, Chief of Strategic Planning and Investor Relations; and Claudio Soto, Chief Economist. Thank you for attending today's conference call. Today, we will be discussing the trends and results of the second quarter. I am pleased to share that our digital strategy and customer-centric product offerings have been instrumental in driving robust results across all business segments, particularly witnessing exceptional growth in non-NII revenues. In addition to this success, our relentless focus on cost discipline has allowed us to partially offset the NII pressures arising from the non-clients NIM during this period of lower inflation and high rates. Looking ahead, we are optimistic about the benefits our well-positioned balance sheet will reap from the Chilean Central Bank easing cycle of interest rates, which commenced last week. This shift is anticipated to trigger a significant recovery in our NIMs and we expect this positive impact to manifest in the final months of this year. To begin, I invite Claudio Soto to give us an update on the macro scenario, beginning on slide five.

Thank you, Emiliano. During the second quarter, economic activity contracted significantly due to continued tight financial conditions and less favorable external conditions for the country. Also, a poor mining performance affected by the delay of large investment projects had an impact on activity. In the coming months, we will continue to see a weak economy, with consumption falling at significant rates and low investment. Based on the information available, we have revised downward our activity estimate for this year from minus 0.75% to minus 1%. However, next year, the economy should rebound and grow at around 2%. The contraction of GDP has generated a significant slack in the economy. This, together with an appreciated peso, the normalization of raw material prices and a reduction in international logistics costs have caused inflation to drop rapidly. Thus, the CPI after closing 2022 with an annual variation of 12.8% today stands at 7.6%. In this context, the Central Bank of Chile began the process of monetary easing, with a sharp cut of 100 basis points in the monetary policy rate at the July meeting. The rate drop was somewhat higher than expected by the market. Because of that, there were adjustments in some financial prices. The peso tended to depreciate and swap rates fell significantly, indicating that the next rate cuts would be more intense than expected until a few weeks ago. In recent days, the peso has continued to depreciate due to global factors associated with greater risk aversion after the downgrade of the US sovereign note. Looking ahead, we estimate that despite the recent depreciation of the peso, inflation will continue to drop rapidly and will close 2023 at around 4% to then reach the target of 3% during the second quarter of 2024. This will give room for the Central Bank to continue cutting the monetary policy rate at least 100 basis points in each of the following meetings during the year, with which the MPR will close at around 7.25%. In the second part of 2024, the rate will reach its neutral level, which we estimate at 4.25%. On page six, we give an update on proposed regulations. At the political level, after the rejection of the tax reform in Congress last March, the government has announced a fiscal pact. The idea is to implement measures against tax evasion and to boost growth with the aim of increasing fiscal revenues, and thus, financing a series of expenses in the areas of health, pensions, and public security. Next March, there will be a new bill with a proper tax reform, although details are still unknown. On the other hand, the government has summoned various actors to unlock the pension reform, which has failed to advance in Congress. In financial matters, the Central Bank of Chile decided to activate the countercyclical capital requirement, setting it at 0.5% of risk-weighted assets, as a precautionary measure against financial risk from the external scenario. Banks have until May 2024 to constitute that requirement.

Thank you, Claudio. I want to begin by reminding you of our Chile First strategy, which aims to position us as the best bank for our customers, employees, communities, and shareholders. We plan to achieve this through four main pillars. First, we aim to become a digital bank that also features branches, providing cutting-edge technology and excellent service through Work/Cafes. Second, we will offer specialized and value-added services for our corporate, middle market, and private banking sectors, focusing on value-added transaction services, foreign exchange, and advisory solutions. Third, we are committed to seeking growth opportunities by challenging traditional banking paradigms and driving sustainable transformations for our clients. Finally, we are building an agile, collaborative, and high-performing organization that celebrates diversity and advances based on merit. To elaborate on our digital banking pillar, we highlight the success of our digital products, such as Santander Life accounts, which now have over 1 million clients enjoying easy access to current accounts as well as the ability to purchase products like time deposits, mutual funds, and credit lines, provided they meet the bank's risk criteria. Our recently launched Mas Lucas sight and savings account is also gaining popularity, with a seamless 100% digital onboarding process that uses facial recognition instead of passwords. This account has no fixed or variable fees and allows deposits of up to CLP5 million. Thanks to these initiatives, we now serve around 2 million digital clients who can manage their banking needs through our website or mobile app. Our advancements in digital strategy have enhanced our branch offerings. Many of you have experienced our Work/Cafe branches—digital spaces combined with co-working areas—and we have upgraded our network with the Work/Cafe Expresso branches, designed to consolidate cash operations while providing a modern, efficient, and secure customer experience. We have opened four Expresso centers in Vina, Rancagua, Santiago Center, and Las Condes, and we plan to expand this model in areas of high density in Chile. As of June, we have reduced our branch network to 260, a 16% decrease from June 2022. Currently, 31% of our branches are cashless, focusing on advisory services, new business, and enhancing customer experiences, which has boosted our productivity. Loan and deposit volumes per branch have risen 22% year-over-year, and productivity per employee has increased 6.8% in the same timeframe. Turning to page 11, we see robust growth in our SME sector, aided by our collaboration with Getnet. Our digital life accounts for SMEs have seen a 17% year-over-year increase in total clients, surpassing 300,000, with a 13% rise in active SME clients. Furthermore, when considering the current accounts reported by the CMF, we have achieved a 31% increase in business accounts, capturing 33.5% of the market share as of April 2023. Getnet continues to contribute significantly to attracting more SME clients by enhancing their experiences with integrated payment solutions. Getnet now has over 219,000 POS terminals across the country, with more than 157,000 SME clients, reflecting an 83% year-over-year growth. In the first half of the year, Getnet generated fees of CLP21 billion. On page 12, we demonstrate how our strategy has positively impacted our cost structure, allowing us to serve clients more efficiently than competitors. Our fees now cover almost 60% of our expenses, compared to an industry average of 43%. Our costs represent just 1.1% of our assets against the industry's 1.5%, and we see operating costs of 2.3% for servicing loans. The average cost per branch is CLP3,144 million, significantly below the over CLP4,000 million industry average. The cost per current account is CLP0.35 million, less than half the industry average of CLP0.8 million. Page 13 reflects our lead in service quality with an NPS score of 56 points, although we noted a slight decrease due to ongoing cybersecurity enhancements for our digital clients. Our Life clients demonstrate greater satisfaction with an NPS of 72, showcasing the strength of our digital channels, which scored highly at 70 and 69 points for our website and app, respectively. Notably, Euromoney recognized us as the best bank in Chile, underlining the effectiveness of our strategy compared to local competitors. We also highlight our commitment to responsible banking, particularly in diversity and inclusion, and our extensive range of sustainable products like Santander Verde. In the first half of 2023, we disbursed $140 million for green finance, positioning us as a leader in sustainability, as recognized by major indices like Sustainalytics and MSCI. We are the only Chilean bank on the Dow Jones Sustainability Index for Global Emerging Companies. Regarding our financial results, page 17 shows that our operating segments, excluding corporate centers and ALM, are thriving, with a 38.8% year-over-year increase in net contributions. The accumulated net income as of June 2023 totaled CLP263 billion, reflecting a 50% decrease year-over-year. Alternatively, our equity book value rose 16%, leading to a 23% growth in TNAV per share and dividend per share. Consequently, our accumulated ROE stood at 12.9% for the first half of 2023. Moving to page 18, the results for Santander CIB, our Corporate Investment Banking segment, indicate an impressive year-over-year increase of 84.5% in net contributions, while the Middle Market of corporates saw a 38% rise. Both segments experienced significant growth in deposit spreads and increased fees, focusing on non-lending activities to enhance profitability. Slide 19 reveals a 21% year-over-year increase in retail banking results, driven by a growing client base and increased client activity. Our active individual clients rose by 4.2% year-over-year, and our active SME client base grew by 13%. The margin witnessed an 18.5% increase, attributed to better funding mixes and loan growth. Fees rose by 29% year-over-year, bolstered by heightened card usage and the expanding client base, including contributions from Getnet. Provisions increased by 57% year-over-year due to recent liquidity normalizations among clients, while operating costs have increased at a controlled rate of 4.5% year-over-year amid our digital transformation. In the second quarter, loan growth was subdued due to the continuing impact of high interest rates. The CIB segment's loans dipped by 1.4% quarter-over-quarter, primarily due to the maturation of short-term loans initially issued in 2022. The Middle Market segment saw slight growth of 0.2%, while retail banking loans increased by 1.3%, with mortgage loans growing 2.4% and consumer loans rising by 1.3%. However, the origination of new mortgage loans remains low due to high interest rates and inflation. By year-end 2022, household liquidity levels stabilized, leading to a resurgence in credit card loans as consumers resumed travel plans and paid off debt. The demand for new SME loans continues to remain low as clients repay government-backed loans from previous years. Overall, loans grew by 3% year-over-year, and we anticipate a mid-single-digit growth rate for the year. On slide 21, we note strong liquidity levels for the quarter. Total deposits increased by 0.3% quarter-over-quarter and 2% year-over-year. The rise was mainly driven by a 4.4% quarter-on-quarter increase in time deposits and a 25% annual increase, thanks to high interest rates attracting clients. Although demand deposits decreased by 15.6% year-over-year, our market share in this area increased from 19.9% to 21.7%. Bonds issued saw a rise of 7% and 2.6% in the last quarter. Throughout the year, the bank issued bonds totaling US$1.7 million and CLP383,000 million, along with $30 million and JPY17.5 billion, taking advantage of favorable fixed income market conditions. The bank's liquidity coverage ratio stood at 175% as of June 30, 2023, well above the minimum requirement. Simultaneously, the net stable funding ratio reached 109.4%, exceeding current legal minimum requirements. The bank's NIM for the quarter was 2.2%. While the US yield has decelerated, high short-term interest rates are exerting pressure on our NIM, particularly from our non-client activities in ALM. However, client NIMs have increased as spreads on deposits and loans have improved. The bank is positioned favorably for lower real rates, and sensitivities to inflation and interest rates have remained stable. A 100 basis point drop in inflation is expected to decrease our NIM by 15 basis points, while a 100 basis point drop in average interest rates could raise our NIM by 30 basis points. Given the downward trend in US yields in July and a recent policy rate cut, we project a US variation of 4.3% and an average policy rate of 10.3% for 2023, with our NIMs expected to recover to around 2.3% in the fourth quarter. On slide 23, we report an NPL ratio of 2.1%, gradually returning to pre-pandemic levels as household liquidity stabilizes and high interest rates impact the economy. NPL coverage reached 165% in June 2023, and there have been no reversals in voluntary provisions. On slide 25, our non-net interest income sources continue to show exceptional growth, with fee and treasury income rising 61% year-over-year and 6.6% quarter-over-quarter, driven by increased product usage across all segments. We anticipate these trends to persist into 2023 as new interchange fee regulations are set to take effect at year-end, potentially affecting fees by CLP25 billion in 2024 and CLP47 billion in 2025. Slide 26 shows our ongoing efforts to enhance productivity and control costs. Operating expenses decreased by 7.5% year-over-year and saw a slight increase of 2.2% quarter-over-quarter. We remain committed to our $260 million technology investment plan for 2023 to 2025, and we expect overall costs to decline in 2023. Moving to slide 27, our capital ratios have improved positively. By the end of the second quarter of 2023, we reported a core equity ratio of 11% and a BIS ratio of 17.5% after distributing 60% of our 2022 earnings as dividends. Starting next year, Chilean banks will need to uphold a counter-cyclical buffer of 0.5%, alongside a 2.5% conservation buffer and a 1.5% systemic buffer for Santander, culminating in a minimum fully loaded CET1 requirement of 9.0% by December 2025. In our conclusion on slide 29, our strategy of being a digital bank with Work/Cafes continues to foster a growing digital client base and strong fee growth while achieving notable efficiencies. Our updated macro scenario for 2023 predicts a contraction of 1% in GDP, a US variation of 4.3%, and an average interest rate of 10.3%. We expect mid-single-digit loan growth across all segments. The bank is strategically positioned for falling real rates, with anticipated NIMs of 2.3% for the full year, alongside solid trends in client NIMs extending into next year. Non-NII growth should exceed 20%, driven by strong client acquisition and engagement. We are focused on controlling costs, targeting a low single-digit decrease in our total cost base. As asset quality stabilizes, our cost of risk is expected to remain manageable between 1.1% and 1.2% for the remainder of the year. In summary, aligned with our updated inflation projections, we anticipate an ROE near 15% for the full year, maintaining our long-term ROE expectations of 17% to 19%. I will now hand the word over to our moderator for any questions you may have.

Thank you for the presentation. We will now move to the Q&A segment of the call. Our first question comes from Mr. Juan Recalde from Scotiabank. Please proceed, sir.

Hi. Good morning, Emiliano, Cristian, Claudio. Thanks for the opportunity to ask questions. I have two questions. I will ask the first one and then the second. So the first one is in terms of NIM. The NIM projection for 2023 is expected now to be around 2.3%. And in the past, it was mentioned that in 2024, it could rebound to 3.3% or 3.5%. So under the current macro outlook, how do you see NIM in 2024?

Hello, Juan. Thank you for your question. I mean I think that what you mentioned still holds something like we expect the NIM for this year to close around, I mean, by the fourth quarter, I mean, by the end of the year to be around 3%. And for next year, according to the real rates, we are anticipating for next year, I mean, combining rates to trajectory with the inflation slowdown, to be in the 3.5% area for the full year of 2024.

Thank you. My second question is about the upcoming repayment of the FCIC facility next year and the expiration of some derivatives in the first half of the year. Could you discuss the anticipated impact of these two factors?

Yes, absolutely. So in our case, I mean, the FCIC was mainly floated. I mean, for us, it's like a floating rate liability that has been affecting our NIMs during these last two years because of short-term interest rates being as high as they are and they were. But the good part of this thing is that for us, the maturity or the expiration of the FCIC will be non-relevant for our NII. That the number of the NIM will improve because, let's say, we'll have a significant part of the balance sheet deleveraging and falling within low NIM, and that will make the overall NIM of the bank improve. But going to your question, in our case, the expiration of the FCIC will be non-material for the NII of the bank.

Thank you for the comment.

Okay. Thank you very much. Our next question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir.

Thank you. Hi. Good morning, Emiliano, Claudio, and Cristian. Thanks for the opportunity to ask questions. So my first question is on your ROE guidance. I remember you were guiding before between 15% to 17%. So now you're expecting the low part of the range because of the expectation of low inflation levels. So just wondering how should we think about the ROE next year and in 2025? I just wanted to understand how you would be approaching to your 17%, 19% long-term target? Then my second question is on your reserve coverage ratio of 175%. Given your strategy to expand into the mid to high-income segment in the consumer segment, what would be the level you will be comfortable to maintain for the next years? And then my final question is on your effective tax rate. We have seen it has benefited because of high inflation. We're now thinking that we're going into a lower level of inflation. How should we think the effective tax rate should be normalizing? Thank you.

Thank you, Ernesto, for your question. I will address the first part, and Cristian can tackle the other two. Regarding the ROE path ahead, we expect to fall within our long-term target range of 17% to 19% next year. The specific placement within that range will depend on the movement of rates. As I mentioned earlier, we anticipate the NIM for the year to be around 3.5%, with real rates projected to be approximately 2% to 2.2% for the entire year. This scenario could potentially position us closer to the higher end of that range. Looking toward 2025, which is a longer-term view, we still uphold our long-term ROE range and believe it will remain stable.

Hi, Ernesto. This is Cristian. Regarding your credit risk question, we are seeing the portfolio behaving at the 1% to 1.2% cost of credit levels and we anticipate that we expect that the lower velocity of the economy is also increasing a little our NPLs to levels pre-pandemic. So we expect this situation to continue in this area. We are not seeing the portfolio deteriorating further. So we're comfortable with the 1.1% to 1.2% levels. And regarding the tax rate, the effective tax rate, well, Chilean banks, because of this inflation exposition, get their credit book in terms of the taxes readjusted by inflation. So a lower inflation will make our effective tax rate increase in the coming quarters and we expect it to get back to the levels we've seen when inflation is usually lower, so closer to 20%, 23%.

Thank you very much, Emiliano and Cristian. Just a follow-up. In terms of the cost of risk, do you feel comfortable maintaining your reserve coverage ratio at these levels?

That's a decision for the Board. However, no decisions have been made regarding the use of our additional provisions, so coverage will stay the same.

Okay, perfect. Thank you very much.

Okay. Thank you. Thank you very much for that. The next question comes from Tito Labarta from Goldman Sachs. Please go ahead, sir.

Hi. Good morning. Thank you for the call and taking my question also. I have one question just on your fee income, the non-NII, which is growing around 20% this year. Just to think about how that can continue to evolve in '24 and '25. How should we think about that non-NII growth going forward? Thank you.

Hi Tito, this is Cristian. We're experiencing a very strong year in our non-interest income, growing over 20%. This is encouraging for us. The main driver behind this growth is our expanding customer base, and we're currently in the phase of benefiting from that growth. We anticipate that this positive trend will continue, although we expect a slight decrease to around 10% growth for the years 2024 and 2025.

Factoring in the headwind from the interchange fees going down in the next two years. So factoring in that we think that we can be in the low double-digit growth in terms of fees.

Okay, perfect. Thank you.

Okay. Thank you very much for the question. Next question comes from Mr. Yuri Fernandes from JPMorgan. Please go ahead, sir.

Hey, guys. Thank you very much. I have two questions, one on US GAAP and the other on cost. Let's start with the U.S. GAAP. I saw that this quarter, your GAAP moved up. Just would like to understand the rationale here because given inflation is moving lower, and you have been reducing your GAAP over the past quarters. I just would like to understand a little bit why the GAAP is higher now. I'm not sure if the cost of derivatives is moving up. It's definitely high, more costly to hedge this asset liability on US, and this explained the higher GAAP. But that's the first one. And regarding the cost, I would like to check our investment plan, right? You put out in the presentation the $260 million plan. This is not new, right? We knew about it. But how much of the plan has been implemented this year? Because your operating expenses are super attractive, super good, right? I think it's the other line. Also, no surprise. But given you have such a big investment plan, my concern is that you may need to accelerate the execution of this plan for 2024 and 2025. And these, with higher taxes, eventually may pressure your bottom line and your ROE target. So trying to understand how much you're like asking about the investment plan to understand how your operating expenses may evolve in the near future? Thank you.

Hello, Yuri. Thank you for your question. Regarding U.S. GAAP, we experienced an increase in the second quarter primarily due to expiring derivatives. We had inflation locked in at high levels, and when those derivatives expired, it resulted in a net increase in the mismatch. We decided not to minimize this because the inflation implied in the derivatives aligns with our expectations. Considering the recent changes in the FX rate, we believe there might be some upward pressure on headline inflation for the remainder of the year. Essentially, we could lock in the current market rate of about 3% inflation, which would help reduce GAAP. In that scenario, the readjustment would be lower, but the margin would be higher based on the implied 3%. We don't foresee inflation straying significantly from what the derivatives indicate. This relates to the cost aspect, as when we hedge in the derivatives market, we don’t operate at mid prices. Trying to secure the 3% would mean leaving some basis points of inflation unaccounted for in our hedging strategy, which is why we feel comfortable. It's not that we're unaware of the risks, but we believe the price growth we could hedge is reasonable, and that’s why we don’t anticipate a further increase in GAAP. We expect it to remain around where it was in the second quarter. The reason for the jump from the first to the second quarter stems from this. As for future costs, our investment plan remains unchanged. We're working to optimize operating expenses to allow for investments, especially in digitalization and branch transformation. We maintain our long-term goal of keeping cost growth below inflation, and this will hold true for next year, with all-in expenses expected to grow below an inflation rate of around 3%.

Super clear. So costs below inflation for the next year and the US GAAP remain around those like CLP7 trillion kind of level, right, those are the takes? Thank you very much.

Yes.

Thank you very much. Our next question comes from Daniel Mora Ardila from CrediCorp Capital. Please go ahead, Daniel. Your line is open.

Hi. Good morning and thank you for the presentation. I have just two questions. The first one is a follow-up regarding the NIM. I would like to understand that a negative part that is impacting currently the NIM related to the swap of interest rates, how it's going to evolve with a decrease in interest rates expected for the rest of 2023 and also beginning of 2024? And what could be the impact of the expiration of the FCIC related to the swap of interest rates? Just to understand, what will be the process there? And the second question is regarding NPLs. We have seen in recent quarters that the commercial NPL has been above peers and also above the industry level. I would like to understand if you are seeing any risk in any company or any economic sector that should have explained this performance? And what will be the expectations going forward? Thank you so much.

Hello, Daniel. Thank you for your questions. I'll address the first one and leave the second for Cristian. Regarding the net interest margin path for non-clients, we anticipate that the current negative position will rebound into positive territory in the upcoming quarters. We expect the non-client margin to be around negative 0.5% over the next year, which should align client margins to approximately 4%. This brings us to the 3.5% net interest margin we discussed earlier. The primary factor contributing to the improvement in non-client margins will be the decline in short-term interest rates, alongside a steepening yield curve from its current negative slope. We anticipate a transition from a steep negative curve to a flatter curve at the onset, eventually gaining a positive slope by the end of next year. This positive slope will benefit non-client margins, especially in connection to the FCIC, considering the liability is floated. In the next quarter, we will enjoy a reduction in interest rates, which will lead to decreased costs. The maturity will be neutral for us since we have short-term assets to settle that liability. Additionally, our assets are also linked to the monetary policy rate, so the overall impact on our net interest income going forward will be minimal, as both the asset and liability yield are expected to equate upon expiration.

Hi, Daniel. This is Cristian. Regarding your NPL question in the commercial portfolio, actually the commercial NPL has increased from 2.5% to 2.9% in the first six months of the year, and our impaired loan ratio has increased from 7% to 7.6% in the first six months of the year. So all-in-all, we are seeing a slight deterioration in the SMEs portfolio, but it's nothing to be really concerned about in the higher net lending names. We haven't seen the Middle Market or the CIB portfolio actually being very stressed. And I would say that the sectors that we are seeing are agro and some construction, but those are very small parts of our total portfolio. There are further details on page 38 of the management commentary.

Okay. Thank you so much for the answers.

Okay. Thank you very much. Next question comes from Ms. Isabelle Irish from Baring Asset Management. Please go ahead, ma'am. Your line is open.

Hello. My question was about net interest margins, which was partially addressed earlier. I would like to follow up on the funding costs. I notice the changes due to high interest rates and the demand for time deposits. How stable are these conditions? Will they last for a long time, or how quickly might we see a shift back? Thank you.

So thank you, Isabelle, for your question. So, well, what we are seeing is the reasonable economic decision of a person that has money in their accounts and is moving them to time deposits to attain the benefits of our higher interest rate. The demand deposits are paying zero in Chile and time deposits are paying about 1% per month for the last 12 months. So we're seeing a trend of re-portfoliation of our deposits that we expect to start reversing once the interest rates in the monetary policy rate in the coming months start further decreasing. So we don't have sensitivities yet of how this effect will evolve. But definitely we are going to see a further reduced movement from the demand to time deposit.

Okay. Thank you very much. Our next question comes from Neha Agarwala from HSBC Global Research. Please go ahead, ma'am.

Hi. Thank you for taking my question. Just one quick question. How should we think about the asset for the trend and cost of risk for next year? This year, we are seeing some normalization, but should we see some stability in 2024? And any other headwinds in terms of going back to normalized levels of ROE for 2024 that we should watch out for? Any reason why the ROE for 2024 should deviate from the normalized ROE level? Thank you so much.

In terms of asset quality, we are maintaining a significant amount of voluntary provisions that will act as a backstop if asset quality worsens. We are comfortable estimating a cost of risk around 1.1% to 1.2%. This provision allows us to address any potential deterioration. The path to normal return on equity next year largely depends on net interest margins. We believe we can stay stable regarding asset quality. Regarding net interest margins, our outlook will be influenced by the reduction of real rates moving forward. Chile has already begun this cycle, and Brazil is following, while developed economies are still in a tightening phase. By the end of next year, we anticipate nominal rates to be around 4% to 4.5%, implying that the Federal Reserve and developed countries may start easing by the second half of next year. However, if inflation remains high internationally and developed economies delay their easing, the floor for rates in Chile could be above 4% to 5%, which could place pressure on our net interest margin normalization. Other than that, I don't see any additional concerns. Cristian, do you have any other insights?

Well, not really. I will reinforce Emiliano's point. So well, actually, the rate path and inflation are probably the main effects to be monitoring and we are seeing asset quality stable from what we are looking at now. So I'm very confident that we can deliver on our cost figures and fees. Well, we already mentioned what we expect. So I will say, all-in-all, we feel that we are going back into our regular profitability levels of the pre-pandemic.

Thank you so much.

Okay. Thank you very much. Our final question comes from Mr. Ewald Stark Bittencourt from BICE Inversiones. Please go ahead sir. Your line is open.

Hello. Thanks for taking my question. You mentioned earlier in the presentation that FOGAPE loans will reactivate SME create growth. So I was wondering what's the expected margin on these FOGAPE loans? How do they compare to normal margins on SME loans?

Yes. So thank you for your question. Yes, I mean, basically, in the SMEs portfolio, we have like two forces. I mean first, we have like the maturity of the initial FOGAPE loans that were granted in 2020 and 2021. Those are, let's say, maturing and going away. Those were set with very low rates because we are the prevailing rates at that moment so those were really low yielded and low spread loans and those are going away. The new ones, the new FOGAPE loans where the program itself was set in this new rate environment. So actually, the spread is not as low as it was at the beginning, and it's in line or slightly higher than the average spread for SME. So that's your question regarding if you want the average spread of the portfolio, the dynamic of the old ones going away and the new ones entering at average or slightly higher than average spread for the portfolio. It's a tailwind for the average spread of the SMEs going forward. And the program is still there and it's a significant part of the new origination in SMEs and it's different to the original one where, in terms of pricing, was kind of a sacrifice for us. In this case, it's more in line with the rest of the portfolio.

Okay, perfect. Thanks.

Okay. Thank you very much. It looks like we have no further questions at this point. I'll pass the line back to the management team for the concluding remarks.

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

Okay. Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you and goodbye.