Earnings Call Transcript - BSAC Q1 2024

Operator, Operator

Hello, ladies and gentlemen and welcome to Banco Santander Chile's First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. Please note that this call is being recorded. Following the presentation, there'll be a question-and-answer session. I will now hand over to Emiliano to begin the presentation.

Emiliano Muratore, CFO

Good morning, everyone. Welcome to Banco Santander Chile's First Quarter 2024 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 Carmen Gloria Silva, our Economist. The agenda for today is: first, Carmen Gloria will discuss the macro scenario; then Cristian Vicuna will review the strategy and results of the first quarter and guidance. And finally, we will have a Q&A session where we will also comment on the recent material facts that were published this morning. First, I want to express my gratitude for your presence at this quarterly meeting. Let's get down to business where I will discuss our performance during the first quarter and recent results. The macro conditions have continued their expected trend and the first installment of the FCIC, approximately 54% of the position, was paid on April 1st. All this helped our margins and net income recovery in April, where we showed a return to normal net income of CLP 71,000 with an ROE of over 20% on demand. We expect the Central Bank of Chile to continue its rate reduction strategy, although at a lower pace for the latter part of the year. This positive impact on funding costs. We'll delve into the specifics of our quarterly results in a moment. Now, I hand over to Carmen Gloria for our macro overview.

Carmen Gloria Silva, Economist

Thank you, Emiliano. Last year the economy underwent a significant adjustment, reversing the balances accumulated from previous periods. By the end of 2023, we saw a modest rebound with GDP growing 0.2% for the year, surpassing previous estimates. However, domestic demand was weaker than anticipated, suffering a decline of over 4% in the early months of 2024, largely driven by more external demand, improved supply factors like the increased added value of power generation, and a new rise in consumption. The pace of growth will likely slow down, but the initial increase suggests GDP growth of around 2.8% in 2024 and above 2% in 2025, closing the gap with its potential level. This economic trend will be supported by a steady improvement in employment and more favorable financial conditions as monetary policy returns to normal and inflation slows, finishing the year with a UF variation of 4.8% compared to more than 13% in 2022 due to lower domestic demand, tighter monetary policies, and stable international prices. Although recent inflation news, price shocks, and currency levels may put some pressure on local prices in the coming months, we expect them to ease by the end of the year with a UF variation of 3.7%. We anticipate reaching the 3% level target by the second quarter of 2025. Regarding the exchange rate, we have seen a significant peso appreciation from levels in February 2024, closing CLP 1,000 per dollar to current levels above CLP 920 per dollar. Following the recovery of copper prices, we estimate that this trend will continue during the year, allowing for lower inflationary pressures. Considering the growth outlook and inflation path, we expect the Central Bank to keep lowering the rates, ending the year around 4.75%, with a 50 basis point cut in the next meeting and between 25 basis points and 50 basis points for later meetings in the year. The rest of Latin America and the U.S. show comparable patterns. Generally, economic activities and inflation are returning to Central Bank goals. With this, monetary policy actions are likely to be more stimulative this year. This decline in uncertainty in Chile and the region creates a more favorable scenario for this year. Regarding the relevant regulatory framework, the government is carrying out a fiscal pact seeking to modernize the current tax system. The main sources of financing are measures against tax evasion for which a Tax Compliance Bill is being discussed in Congress, which seeks to collect 1.5% of GDP. It also includes pro-growth measures such as improvements in permitting processes already in Congress, greater spending efficiency, and other tax reforms related to increasing taxpayer burdens. While the Chamber of Deputies approved the idea of reforming the pension fund system considering a Social Security scheme among other measures, the proposal did not obtain sufficient support for the additional 6% contribution and its distribution between individual capitalization accounts and social security funds has been debated. The reform is now being discussed in the Senate and it will face an intense negotiation process to be approved. The banking industry is facing the implementation of the open finance system, which will generate more competition and financial innovation. The consolidated debt registry bill is in its final discussion in Congress. The text establishes a registry of information on credit obligations with the aim of improving people's credit information and ultimately providing better financial products and services. Finally, the fraud law approved in 2020 established that banks can take legal action if they collect information that proves fraud or serious negligence by users of payment methods. Since its implementation, unknown operations have increased significantly and a substantial portion could be associated with sales fraud schemes, generating relevant losses for the industry. In this sense, the recent amendments to this law could help mitigate these negative consequences.

Cristian Vicuna, Chief of Strategic Planning and Investor Relations

Thank you, Carmen Gloria. This is Cristian Vicuna speaking. Good morning, everyone. Now I will proceed to review strategy and results. Turning our attention to Slide 8. Let me begin by reminding you of our commitment to our Chile First Strategy. We aspire to lead the Chilean banking industry in terms of contribution to its various stakeholders. This strategy we have named Chile First has four pillars. The first two pillars focus on what we want to become and the last two pillars focus on how we want to do it. First and foremost, we are engaged in a transformative journey towards becoming a digital bank with branches. Our transformation into a digital bank is not only about adopting cutting-edge technology, but also about having a friendly physical presence through our innovative Work Cafe. These spaces are more than just places to interact with retail customers; they are dynamic hubs that promote connectivity for both customers and potential customers. With advanced technology and a commitment to excellent service, our Work Cafe are designed to redefine the banking experience. The medium-term objective is to reach 5 million customers and 450,000 SME clients. Our second pillar is centered on providing specialized value-added services tailored to some business segments. Our commitment is to deliver premium transactional trade, foreign exchange, sustainable finance, and advisory products and services, ensuring our clients receive a top-notch experience. Examples of this include our corporate investment bank, our specialized attention model for commercial banking, our Santander consumer business that offers car financing, and Getnet, our acquiring business. In our third pillar, we are committed to fostering innovation and propelling growth by challenging the status quo and creating new business opportunities. A good example of this is the disruption we introduced in Chile with the four-part model when we launched our acquiring business Getnet to the market. So we aim to lead the change in redefining the banking landscape. We actively seek out new business opportunities and pioneer the sustainable transformation of our customers. By challenging conventions, we aim to drive growth and cultivate success. Lastly, we place great importance on the role of our organization. To realize our objectives, we need the best talent. We are dedicated to building an agile, collaborative, and high-performance culture. We recognize that diversity is our strength and individuals will flourish based on merit. We are constructing a thriving community where talents are nurtured, and innovative ideas are highly valued. The outstanding success of our digital products has been firmly established during 2023 and 2024 with the continuous growth of our digital client base. Key initiatives such as Santander Life and, more recently, Mas Lucas have been instrumental in achieving this. The Mas Lucas account was launched in March 2023 and is the first 100% digital site and savings account for the mass market. It now has over 163,000 clients, exceeding our expectations. It currently accounts for over 30% of our new account openings per month. Notably, the onboarding process for Mas Lucas is entirely digital, featuring facial recognition technology and no password requirements. This account comes with no fixed or variable costs and accepts deposits of up to CLP 5 million. On Slide 10, we can see how the advances of our digital strategy are allowing us to continue the transformation of the branch network through Work Cafe to improve productivity. Our bank's Work Cafe branches are expanding to cater to the specific needs of our clients. We have launched three new types of Work Cafe formats, including the successful Work Cafe Espresso, which consolidates cash operations into transaction hubs while maintaining a Work Cafe ambience. This is a great initiative as it provides an efficient and secure banking experience for our customers. We have already opened seven of these branches as of May, impacting positively on the communities that use them with better levels of experience, extended hours, and increased security. We also have our Work Cafe StartUp, which offers a comprehensive solution to all the needs of entrepreneurs, helping increase banking usage, conduct pilot programs with the bank, and even offering financing. This is a fantastic way to support entrepreneurs and help them grow their business. Finally, we have launched Work Cafe Inversiones, a dedicated asset management Work Cafe designed specifically for investment advice for clients and non-clients independent of their income situation. In this branch, we offer weekly talks about different investment products or economic trends to provide advice services, thereby supporting financial education. At the bottom of the slide, you can see how the use of digital channels and the transformation of our branch network has led to a new level of branch footprint, decreasing 24% in 2022 and a further 14% in 2023 to a current level of 246 branches. Notably, 31% of our branches no longer have human tellers, with these branches providing value-added services like our traditional Work Cafe. At the same time, our productivity has continued to improve with loan and deposit volumes per branch increasing 20% year-over-year and a 12.8% rise in the same metric per employee during the same period. On Slide 11, we can see how our key initiatives with SMEs are driving impressive growth in this segment. Our digital life account for SMEs continues to drive a 36% year-over-year increase in total SME clients, with more than 381,000 SME clients. When considering current accounts for businesses, as reported by the CMF, we have seen a remarkable 35% increase, capturing over 36% of the market as of January 2024. Getnet, our acquiring business, continues to be an important driver for capturing new SME clients as well as expanding into larger clients requiring a host-to-host solution for more sophisticated customers needing a more integrated payment system. Currently, Getnet operates more than 137,000 active points of sale terminals across the country. During the first quarter of 2024, Getnet generated fees totaling CLP 14.3 billion and a net income of CLP 3.3 billion. On Slide 12, we are pleased to show that we have been consistent in leading the market in terms of customer recommendations, with a net promoter score sustaining levels of above 64 points. Our NPS score is based on feedback from more than 50,000 surveys measuring over 30 NPS metrics across our various service channels daily. This invaluable feedback allows us to proactively manage and improve our client service. Our digital and remote channels continue to receive very high levels of satisfaction from our clients, with our app and website achieving scores of over 70 points. Our contact center is also highly rated, outperforming our peers. Now let's talk about the trends in our results and balance sheet in 2024 and the first quarter. On Slide 14, we show our results for the first quarter of the year. We exceeded our initial guidance for ROAE in the first quarter of 2024, achieving a net income attributable to shareholders of CLP 120 billion with a quarterly ROAE of 11.2%. We have already published our preliminary numbers for April, achieving a net income of CLP 71 billion, making it one of the top ten months in our history in terms of results, reaching a monthly ROAE of 20%. We expect this fast recovery to continue throughout the year. Our operating segments continue to grow steadily, and our book value has risen by more than 6% year-on-year, resulting in a 10% increase in the total net asset value per share plus dividend per share. On Slide 15, we can see the growth in our loan balances. The quarter saw a 1.1% increase in loans on a 5.5% year-on-year rise, mainly for mortgage and commercial lending. Mortgage loans grew slightly more than the UF variation in the quarter but will align with inflation going forward. Consumer lending was driven by credit card growth after a period of reduced demand due to high household liquidity. Commercial loans grew mainly from translation gains since about 23% of our commercial loans are in foreign currency, leading to less demand for new loans due to economic conditions. Our loan book should grow at a moderate rate this year following the economy. The bank's liquidity position was robust in the quarter as total deposits kept growing at a strong 2.2% on the quarter and 8.4% year-over-year. The growth was mainly driven by time deposits, which rose 4.8% in the quarter due to an increase in large corporate deposits, as clients found the moderately high interest rates appealing. Our demand deposits remain stable compared to end-of-year levels, which are typically affected by seasonality in December, something we consider positive. Our clients boosted their mutual fund investments through the bank, growing an impressive 12.7% in the quarter, achieving high growth in assets under management. Bond issuance rose, taking advantage of local and global fixed income markets. During the pandemic, we secured CLP 6.2 trillion in credit lines from the Central Bank of Chile. This credit line has two deadlines: one on April 1st and the final one on July 1, 2024. We have already repaid the first deadline, CLP 3.3 trillion, which was around 55% of the total, using the liquidity deposit program provided by the Central Bank. For the second deadline, we have almost all set up in central bank liquidity deposits. Thus, the final payment of the FCC is well covered and will have no impact on the liquidity of the bank. After the repayment of the entire FCIC, we estimate that our LCR will be around 170%, showing ample liquidity. On Slide 17, for the first quarter, we achieved a 2.7% NIM confirming our recovery as planned. Our net interest income grew 31% year-over-year but dropped 4% in the quarter. The NII in the first quarter benefited from higher interest income as the lower monetary policy rate reduced our funding cost to 5.3% in the first three months of the year, though this was partly offset by lower income from readjustment due to the 0.8% UF variation in the quarter. We expect our NIM to continue recovering in the coming quarters and to reach at least 3.2% for 2024, with our client NIM stable and significant improvement in our non-client NIM. The first FCIC payment reduced our interest-earning assets by 6% in April, resulting in a monthly NIM of 3.5% for the month and a 2.9% year-to-date. This marks a yearly improvement of 58 basis points, and we anticipate this recovery to persist throughout the year. Regarding asset quality, we see that our NPL ratio is rising, as expected, due to the economic cycle. The March figure for consumer loans NPLs was 2.3%, while the mortgage NPLs stood at 1.5%. Our commercial portfolio NPLs were 3.5% for the quarter. The recent increase in NPLs is partly explained by a slower increase in the denominator of the ratio; in other words, the loan book is not growing robustly. As we can see, most of the NPL growth is attributed to commercial loans, and more recently, to mortgage loans. The growth in commercial loan NPLs is largely due to specific issues in the agricultural industry and some real estate companies, most of which have already been accounted for in the impaired portfolio. Overall, these commercial loans have guarantees that mitigate the risk exposure, and this is also true for mortgage loans. We anticipate that NPLs will peak in the next few months and begin to improve in the second half of the year. Our impaired loan ratio, which encompasses both NPLs, customer deterioration in commercial single names, and restructured loans, remains lower than before the pandemic, though it is showing an upward trend. The impaired ratio for March was 5.8%, resulting in a coverage ratio of 142% of our NPLs. Before the pandemic, mortgages comprised about a third of our total loan portfolio. Due to the strong growth of UF-denominated loans in recent years, mortgages now account for over 40% of our total loan book. As mortgages are secured by property, they require less coverage, so the change in loan mix will necessitate less total coverage. Specifically, our consumer loan book coverage stands at about 383%. The commercial portfolio coverage is 124%, and mortgage portfolio coverage is 71%, but this does not consider the collateralization of the portfolio with a strong loan-to-value ratio. Cost of credit for the quarter was 1.26%. As shown, our cost of credit is slightly increasing along with the changes in asset quality. For 2024, we project cost to credit to remain around 1.3%, following the economic cycle and labor market conditions that are expected to improve in the second semester. Next, we look at the non-NII revenue sources. Fee income increased 10.1% quarter-on-quarter as our clients utilize our digital platform more for our main products. The small year-on-year decline is mostly because of the effect of the interchange fee regulation that began in the last quarter of 2023 and certain non-recurring fees generated by our operations when compared to the first quarter of 2023. Income from financial transactions fell year-over-year primarily because of lower income from the trading portfolio after a comparatively high first quarter last year and a general decrease quarter-on-quarter due to negative results in this line from liability management exercises in the period. On Slide 31, our core expenses remained consistent with inflation year-on-year and dropped 2% in the quarter, mainly due to reduced personnel expenses. In the first quarter of this year, we recorded a one-time operating expense of CLP 17 billion related to restructuring provisions. This aligns with our strategy concerning the transformation of the branch network and the progress of digital banking. As a result, our efficiency ratio was 47% for the quarter. If we review the April numbers, our year-to-date efficiency ratio improved to 44.6%, with a 37.4% figure for this ratio in April standalone. Throughout 2024, the bank continues to concentrate on implementing its $450 million investment plan for the years 2023 to 2026 for technology projects and branch renovations. We noticed a positive evolution of our capital ratios. At the end of the first quarter of 2024, the bank reported a total capital ratio of 17.6% and a core equity tier 1 ratio of 10.4%. These figures take into account the provision for the 70% annual dividend that was paid after approval by the shareholders' meeting in April. On January 17, 2024, CMF applied current regulations on additional capital requirements according to Pillar 2, which contemplates two main topics: credit concentration risk and the market risk of the banking book. A Pillar 2 requirement was established for six banks in the Chilean system. Banco Santander Chile was not instructed to establish additional capital for this pillar on this occasion. However, the measurement of the market risk of the banking book will continue to be discussed, and capital charges may be implemented in the coming years. Another relevant point to consider is that at the last shareholder meeting, the board was granted the authority to raise the dividend payout provision above the legal minimum of 30% for 2024 and onwards. Finally, on Slide 24, we conclude with a review of our guidance. As we mentioned, April's preliminary results show how the fading out of the FCIC and the reduction in the monetary policy rate are benefiting the bank's performance. We delivered a net income of CLP 71 billion and an ROAE of 20% for the month, indicating that we are on good tracks towards our historical performance already. Last week, the CPI number for April came out at 0.5%, higher than expectations and implying solid margins for May as well. We expect the second quarter to be considerably stronger than the first. These are early signs that we are on track to deliver our 2024 guidance. Our macro expectations for 2024 are more positive compared to last year with an estimated GDP growth of 2.8% and a UF variation of around 3.7%. However, with the monetary policy rate ending 2024 around 5%, we expect loan growth to reach mid-single digits as the economy reactivates. In April, we already see a relevant recovery in our net interest margin. This trend should continue throughout the year. Given our current macro expectations, we anticipate our NIM to reach levels of at least 3.2% for the full year. Non-net interest income should grow around mid-single digits with good customer product trends but impacted by the interchange fee regulation in cards that began at the end of 2023. Cost of risk is expected to slightly increase to 1.3%, with asset quality following the economic cycle. Our core expenses should grow less than inflation, and the effective tax rate will be normalizing. With all of this, our ROE for 2024 will be recovering towards normalized levels. Although our first quarter was weaker, we can already expect a stronger second quarter. With improving profitability throughout the year, we should fall within the 15% to 17% range for ROE for the full year. Our long-term ROE objective remains in the range of 17% to 19%. With this, I finish my presentation and hand over to Emiliano Muratore.

Emiliano Muratore, CFO

Hello, it's me again. In case you haven't seen it earlier today, we released the material fact regarding a cybersecurity event. The disclosure states as follows. The Santander Group has recently become aware of unauthorized access to a database hosted by a third-party provider. Santander Group immediately implemented measures to manage the incident, such as blocking the compromised access to the database and strengthening fraud prevention to protect clients. After the investigation carried out, the Santander Group can confirm that information has been accessed from clients of Santander, Chile, Spain, and Uruguay, as well as from all employees and some former employees of the group. In the rest of the group's market and businesses, there is no client data affected. It's important to note that there is no transactional information in the database or Internet banking access credentials or passwords that allow you to operate with the bank. The bank's operations and systems in Chile, like those of the rest of Santander Group, are not affected, and customers can continue to operate safely. Thanks, everybody. Now we welcome your questions.

Operator, Operator

Thank you. We will now move to the question and answer section. Our first question comes from Tito Labarta from Goldman Sachs. Your line is open. Please go ahead.

Tito Labarta, Analyst

Hi, good morning. Thank you for the call and taking my question. My question is just, I guess, on your long-term ROE expectations, the 17% to 19%. I understand you have some issues this year, but just to go from the 15% to 17% that you're expecting in 2024 to the 17% to 19%. Just want to understand what the drivers will be for that. Would it be mostly further NIM expansion as you get all FCIC will be completely off your books next year? I mean, do you expect rates to come down further in 2025? How dependent will it be on inflation? Or do you expect any acceleration in loan growth? Just thinking of all the different moving parts. And what gives you comfort that the ROE will expand another 2% in 2025? Thank you.

Emiliano Muratore, CFO

Hello, Tito. Thank you for your question. Yeah, I mean, long term means long term. 2025 is, it's longer than 2024, but maybe not long enough. But yes, answering your questions, I mean the two main drivers compared to 2024: first would be the cost of risk. I mean this year, cost of risk will be above the long-term sustainable level for us considering the economic cycle and the macro situation for this year. So going forward, that should be a tailwind for ROE. And the second, yes is NIM together with the FCIC fade-out plus the normalization of the monetary conditions. I mean by that real rate conversion to low single digits, I mean from 2% or below, we are getting ready. We are getting there, but not there yet. So those two factors, along with the cost discipline we have always had plus the non-NII coming from fees to be a sustainable revenue source, are the main levers to go from the 15% to 17% this year to the 17% to 19% long term.

Tito Labarta, Analyst

Okay, perfect. Very clear. Thanks, Emiliano.

Operator, Operator

Thank you. Our next question comes from Neha Agarwala from HSBC. Please go ahead.

Neha Agarwala, Analyst

Hi, can you hear me?

Operator, Operator

I think we lost Neha. Perhaps we can take the question from her later. In the meantime, we have a question from Daniel Mora from Credicorp. Please go ahead. Your line is open.

Daniel Mora, Analyst

Hi, good morning and thank you for the presentation. I have one question regarding NPLs. Right now, Santander has the highest NPL compared to the relevant peers, the largest peers in Chile. I would like to understand the situation regarding the commercial NPL. For example, if you are seeing specific sectors that are driving this increase in NPLs or if the highest NPL compared to the industry level is more related to the low mix in that segment. What actions will you take to improve NPLs going forward? Thank you so much.

Cristian Vicuna, Chief of Strategic Planning and Investor Relations

Hi, Daniel. This is Cristian. It's true that our NPLs have increased in the last year, in line with this situation of the economic cycle. If we review the evolution of our portfolio, we can see that the growth is mainly explained by two increases: about 40% in mortgage loans and the rest in commercial loans for corporate clients. So both of them have strong collateral. Regarding the corporate loans, we identified two portfolios with a concentration of NPLs in single names, mostly in agriculture and some particular cases in real estate. Both portfolios have very good collaterals that lower the need for provisions, and we have already accounted for them in the impaired portfolio. So, actually, we don't see this translating completely into the cost of risk. We see a very moderate impact on our cost of risk. But we are noticing these NPLs of some deterioration in these corporate loans that we already anticipated as we have considered them in the impaired portfolio. We expect the situation to start improving in the second half of the year, mostly due to improved employment figures and the return to growth of the country's GDP.

Daniel Mora, Analyst

Perfect. Thank you so much. It means that the normalized figure of the cost of risk for Santander, with the economic situation improving, interest rates low, and inflation under control, will be between 1%, 1.1%, or could it be a higher number. Thank you so much.

Cristian Vicuna, Chief of Strategic Planning and Investor Relations

We’re seeing something between 1.1% to 1.2% as normalized in the long run.

Operator, Operator

Thank you. Our next question comes from Olavo Arthuzo from UBS. Please go ahead.

Olavo Arthuzo, Analyst

Yes, good morning, everybody. Thank you for taking my question. I have a very quick one related to your business. I noticed that you maintain and changed the guidance for the ROE expectations. But in this first quarter, we saw contraction in the retail CIB throughout basically those three main business units of the bank. So I just wanted to hear from you what you expect in terms of each of them regarding recovery throughout the next quarterly results and which one of them do you see as the most important for this ROE rebound? Thank you very much, guys.

Emiliano Muratore, CFO

Hello, Olavo. This is Emiliano. Thank you for your question. The first quarter performance in those businesses also had a base comparison with what was a very strong first quarter last year. If you look at the sequential performance of those businesses, especially the revenue part, leaving aside regulatory effects like the interchange fee regulation on our retail business that basically got higher at the end of last year, which has put some pressure on the fee part, the trends in revenues, customer acquisition, and customer satisfaction are still strong across the board. I mean, in the corporate segments, as Cristian was mentioning, we're dealing with a higher cycle in terms of NPLs, and we are managing that. However, we're not concerned considering the level of collateral and the evolution of macro conditions in those segments. So we are still confident of achieving high single-digit growth across the different segments, as the macro conditions will be favorable for both consumers in terms of employment and GDP growth, and the same goes for corporates with investment coming up from the low point we saw over the past two years.

Olavo Arthuzo, Analyst

Okay, that's great. Thank you very much, guys.

Operator, Operator

Thank you. Our next question comes from Carlos Gomez from HSBC. Please go ahead.

Neha Agarwala, Analyst

Hi, can you hear me?

Emiliano Muratore, CFO

Yes, Neha, we can hear you.

Neha Agarwala, Analyst

Hi. I apologize for the disconnection earlier, so I'm asking my question from Carlos's line. I missed some of the initial comments; could you explain the impact of standardizing provisioning models for the consumer portfolio? Did that influence the provisions? Also, regarding loan growth, could you provide insights on how the various segments of the loan book are performing? Which segments do you expect to grow the most this year, and are there any that are underperforming? Thank you.

Emiliano Muratore, CFO

Okay, so first on the standard provisioning framework for consumer loans. We expect the impact to be around CLP 100,000 million by the end of the year. As of the first quarter, it was about CLP 85 billion. If we forecast or try to project the situation by the end of the year, when the regulation is taking place, it's going to be around CLP 100 billion. We are going to use the voluntary provisions to cover that. So we have today around CLP 300 billion in voluntary provisions. About a third of that will be used to cover that. So we'll still have CLP 200 billion remaining in voluntary provisions, which we don't expect to impact the cost of risk, nor the coverage ratio since we have already allocated those provisions. And in terms of loan growth; we see that the book overall is growing in line with general guidance for the total loan book. Long-term investments and CapEx for corporates may take some time to rebound, possibly later in the year, so the segment could be slightly below the average. Mortgage lending is growing in line with UF variation; thus far, we've seen growth slightly above UF variation. Going forward, we expect to be in line with inflation, which may put it between 4% to 5% growth in nominal pesos, possibly slightly below the average. Consumer lending is the one that, with economic activity improving, employment rising, and households benefiting from very low leverage levels post-pandemic, will likely converge towards more normal historical levels of leverage. We believe that will lead to consumer lending growing above the average of the total loan book.

Operator, Operator

Thank you. The next question comes from Paulo from Banchile. Please go ahead.

Paulo Gonzalez, Analyst

Hi, good morning to everybody. I have a question regarding the guidance for NIM for the year of 3.2%. I would imagine that means that for the second half of the year, the NIM should rise to levels of around 3.3%, 3.5%. What would be the driver for this increase in NIM? I understand, of course, that the FCIC is going off the books in the second half of the year, but given that most of those are invested in papers with a similar rate of return, I would imagine the impact of that is not that high. So just be able to give us more details on that.

Emiliano Muratore, CFO

Yes. Hello, Paulo, thank you for your questions. Yes, I mean, we stated that NIM for the year should be at least 3.2%. Definitely, that has an upward trend. Already in April, we had an info for the month of around 3.5% and we expect to be around that for the second quarter or as a whole, considering the CPI number we got from April. The main driver, as you said, I mean the FCIC maturity, as itself is not very material in terms of NIM. It is arithmetically basically because the denominator of the ratio is falling by 10%; it already fell 5% with the first maturity, and it will fall around another 5% in July. So the NIM as a ratio will increase close to 10% just because the denominator is falling. But the main driver is like rates going down and inflation staying for the year around 3.5%, 3.7% as UF variation. That will take, as you said, the NIM for the last part of the year, in the last quarter at 3.5% or higher in order to be, for the full year, at least at 3.2%. The main driver remains the normalization of the monetary policy. We are currently at 6.5% as the monetary policy rate. We expect 50 basis points for the May meeting and then cuts of between 25 basis points to 50 basis points in the following meetings to close around 4.75% to 5% for the year. That's basically the main driver for NIM to increase, along with inflation, staying around the levels we are seeing for the second quarter, maybe slightly below as a whole for the year, but closing at 3.7%, 3.8% UF variation for the year.

Paulo Gonzalez, Analyst

Perfect. Also, if I can, given that you have this exposure to interest rates. Is that because your book has a higher gap in duration than other competitors in Chile? And for you guys to be able to reach the 17% to 19% long-term ROEs, would that require an increase in the loan books for commercial and consumer loans for the NIM to reach around 3.84% to get that ROE of 18%, is that correct?

Emiliano Muratore, CFO

Yes. I mean, definitely, we don't know the details of other players, but it's our sense that our sensitivity to interest rates is higher than theirs, as we've observed in the tightening cycle. Thus, we anticipate benefiting more in the current easing or reducing cycle. Regarding loan growth for the long-term ROE, yes. If we consider long-term GDP growth expectations in nominal terms for the economy, we think around 5%. Given the historical multiplier, we expect that high single-digit growth in the loan book will be necessary to sustain the long-term ROE while maintaining the NIM in the high 3s. It's also essential to factor in that today the weight of the mortgage portfolio in the total loan book is much higher than it used to be. Therefore, the 4.5% higher NIMs we had in the past, with the current composition of the loan book, will be definitely harder to achieve. It seems more reasonable to expect NIMs around 4%.

Paulo Gonzalez, Analyst

Perfect. Thank you.

Operator, Operator

Thank you. The next question comes from Ernesto from Bank of America. Your line is open. Please go ahead.

Ernesto Gabilondo, Analyst

Thank you. Hi, good morning Emiliano and Cristian. Thanks for the opportunity to ask questions. Most of my questions have been answered, so I just have a couple of them. The first one will be on your effective tax rate. You were guiding it should normalize to historical levels, but I just wanted to double-check what would be those levels? My second question is on fintechs' competition. Just wondering, how do you see the most important fintechs in the country or who are the technology competitors that you have seen more aggressively? And how do you see Santander Chile prepared for competition?

Cristian Vicuna, Chief of Strategic Planning and Investor Relations

Hi Ernesto, this is Cristian. Thank you for the question. Our effective tax rate is actually a couple of points below 25% when inflation is around 3%. This year, with inflation slightly above 3%, we should see one or two percentage points below that, so in the ballpark of 21% to 22%. That's why we expect a normalization of the effective tax rate. Regarding fintechs, let me start, then Emiliano will complement. In Chile, we are not seeing the presence of large disruptive fintechs like the neobanks in Brazil and Mexico. We haven't observed the rise of these types of competitors locally. There are specific competitors in areas like factoring or international remittances of money, but those remain very specific. We're also seeing increased competition from fintechs within traditional banks, like the Credit Corp initiative. What we're observing more is an environment where incumbents are accelerating their transformations to address this competition. This is where we've been leading the way with our life initiative and the Mas Lucas account. We feel highly confident in our transformation to address potential new entrants. Notably, the most relevant fintech competition includes Mercadopago and Alpaca; these are the guys we see as significant new entrants.

Emiliano Muratore, CFO

Just to complement Cristian's comments, I would add that the only relevant regional player that has entered the market is a specific fintech, and we feel very confident about our capabilities to compete against them and any potential future entrants. When you see our digital footprints with individuals and SMEs, along with our Getnet proposition in acquiring payments, all in the context of overall universal banking, our ecosystem is quite unique. Customer satisfaction levels remain strong for us; we lead the market in that sense. While we don't rule out further entrants, given Chile's size, some may not have yet entered, but they might in the future. We believe we are well-positioned to sustain our current competitive positions and continue growing, even with new entrants.

Operator, Operator

Thank you. We have a question from Alonso Aramburu from BTG. Please go ahead.

Alonso Aramburu, Analyst

Yes. Hi, good morning and thank you for the call. I have two questions on my end. The first one on expenses. I was wondering if you can comment if you potentially have additional provisions or restructuring provisions like you had this quarter for the rest of the year. My second question regarding your guidance on ROE of 15% to 17% for this year; you had 20% in April, but for you to hit roughly the midpoint of that guidance, it seems like you need around 19% ROE for the rest of the year. I'm wondering if that's in line with what you're thinking. Thank you.

Emiliano Muratore, CFO

Yes, hello, Alonso. Thank you for your question. I mean, we don't expect any additional one-off provisions like we had in the first quarter for the rest of the year. Regarding ROE, yes, we still hope to remain within the range of 15% to 17% this year. The macro evolution, the falling rates, and inflation not dropping as much as we were previously expecting have made it reasonable to remain in the middle of that range. As you stated, we could be around 19% for the remainder of the year. How higher or lower we are compared to that midpoint will depend basically on the evolution of rates going forward. We have the monetary policy meeting by the end of May, where we expect an additional cut. I think it's reasonable to expect to maintain that mid-range and achieve high double-digit ROE for the remainder of the year.

Operator, Operator

Okay, thank you. I'm not seeing any more questions, so perhaps I can hand back to Emiliano for closing remarks.

Emiliano Muratore, CFO

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

Operator, Operator

That concludes the call for today. Thank you and have a nice day.