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Banco Santander Santiago:Leading performance
in retail banking
May 2006
2
Banco Santander Chile caution that this presentation contains forward looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. These forward looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance. While these forward looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates, and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors and other key factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America, could adversely affect our business and financial performance.
Note: the information contained in this presentation is not audited. Nevertheless, the consolidated accounts are prepared on the basis of generally accepted accounting principles
Important information
3Main points
■ Chile: a sound and fast growing economy
■ A financial system with high growth potential, especially in retail banking
■ Santander Santiago: Chile’s leading retail franchise
■ Strategic focus: increase profitability by expanding retail banking activities. 2005 & 1Q06 results in line with this goal
■ Positive 2006-07 outlook
4
■ Solid fundamentals: high growth, low interest and inflation rates, fiscal surplus, balanced current account and high savings rate
■ Stability: fiscal and monetary policy based on transparent rules and policies
■ Open economy: (average tariff < 2%); Free trade agreements with USA, Europe, China, Canada, Korea and New Zealand. Talks with India and Japan
■ Some risk factors: deceleration of the world economy; unexpected downward shifts in prices of commodities; overheating of local economy
Healthy environment for banksHealthy environment for banksHealthy environment for banksHealthy environment for banks
Stability of the rules helps to sustain economic growthMacroeconomic scenario
5
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
0 2 / 0 1 / 2 0 0 4 0 2 / 0 5 / 2 0 0 4 0 2 / 0 9 / 2 0 0 4 0 2 / 0 1 / 2 0 0 5 0 2 / 0 5 / 2 0 0 5 0 2 / 0 9 / 2 0 0 5 0 2 / 0 1 / 2 0 0 6
Source: Bloomberg, JP Morgan & Standard & Poor’s
USA AAA
UK AAA
Spain AAA
Portugal AA
Italy AA-
Chile A
Santander Santiago A
Czech A-
Poland BBB+
Mexico BBB
Russia BBB-
SPREAD OVER U.S. T-BILLS(Basis points)
SOVEREIGN RATINGS
Low country risk reflects Chile’s stability and strengthsMacroeconomic scenario
EMBI index
CHILE index68
191
6
7Main points
■ Chile: a sound and fast growing economy
■ A financial system with high growth potential, especially in retail banking
■ Santander Santiago: Chile’s leading retail franchise
■ Strategic focus: increase profitability by expanding retail banking activities. 2005 & 1Q06 results in line with this goal
■ Positive 2006-07 outlook
8
Total loans, constant US$ billion as of 1Q 2006
Loans to individuals growing above 22% per annum
2 8 2 9
2 62 4
2 11 9
1 7
2 3 ,02 2 ,3
2 5 ,2
1 3 ,8
S e p .0 3
M a r .0 4
S e p .0 4
M a r .0 5
S e p .0 5
M a r -0 6
L o a n s t o I n d i v i d u a l s *
5 85 9
5 55 1
4 84 64 5
1 5 ,21 3 ,2
6 ,5
- 0 , 6
S e p .0 3
D i c .0 3
M a r .0 4
J u n .0 4
S e p .0 4
D i c .0 4
M a r .0 5
J u n .0 5
S e p .0 5
D i c .0 5
M a r -0 6
C o r p o r a t e a n d P u b l i c S e c t o r L o a n s
6 8
7 5
8 58 9
1 8 ,4
1 6 ,01 1 ,6
3 , 2
S e p - 0 3 M a r - 0 4 S e p - 0 4 M a r - 0 5 S e p - 0 5 M a r - 0 6
T o t a l L o a n s
Volume Annual growth, %
* Loans to individuals = Consumer + residential mortgage Source: Superintendence of Banks
Financial System
9
8 38 7
5 76 2
6 87 3
8 0
1 9 ,3
0 ,0
2 0 ,01 7 ,5
S e p .0 3
M a r .0 4
S e p .0 4
M a r .0 5
S e p .0 5
M a r -0 6
C u s t o m e r f u n d s ( D e p o s i t s + F u n d s )
7 07 2
6 45 9
5 45 0
4 8
1 8 ,6
1 3 ,1
1 ,3
2 0 , 5
S e p . 0 3 M a r . 0 4 S e p . 0 4 M a r . 0 5 S e p . 0 5 M a r - 0 6
D e p o s i t s
1 3
1 51 6
1 31 4
1 1
9
1 4 ,4
1 3 ,3
5 7 ,0
- 6 ,7S e p . 0 3 M a r . 0 4 S e p . 0 4 M a r . 0 5 S e p . 0 5 M a r - 0 6
A s s e t s u n d e r m a n a g e m e n t
Volume Annual growth, %
Customer funds, constant US$ billion as of 1Q 2006
Healthy growth of deposits and assets managed
Source: Superintendence of Banks
Financial System
10
6 4 7 0 7 9
1 1 5
1 5 7 1 6 9
1 9 9 7 2 0 0 1 2 0 0 5 E U - 1 2 U K U S
CHILE
Loans / GDP, %
High potential to increase bank penetration levels...
Source: National Central Banks, European Intelligence Unit and FED. As of 12-31-05 except US as of 09-30-05
Financial System
11
5 1 %
1 1 8 %
C h i l e D e v e l o p e d m a r k e t s
* Consumer + mortgage. Source: Superintendency of Banks, Central Banks & European Intelligence Unit. Figures as of Dec. 2005 except USA 09/2005** Source: Banco Central de Chile, Informe de Estabilidad Financiera, 2º Semester 2005
Household debt** / Disposable income
9 68 8
5 3
2 3
U K U S E U - 1 2 C h i l e
6 15 2
4 6
3 3
U K U S E U - 1 2 C h i l e
Loans to individuals* / GDP, %
Loans to individuals* / Total loans
… especially in retail bankingFinancial System
12
5 % 5 %4 %
3 % 3 % 3 %2 % 2 % 2 % 2 % 2 % 2 % 1 %
US
A
UK
Ge
rm
an
y
Ta
iwa
n
S.
Ko
re
a
S.
Afr
ica
Ja
pa
n
Ru
ss
ia
Po
lan
d
Ar
ge
ntin
a
Br
as
il
Ch
ile
Mé
xic
o
6 8 %
3 1 % 2 6 % 2 0 % 1 9 % 1 7 % 1 1 % 1 0 % 8 % 5 % 4 % 1 % 1 %
US
A
Bra
sil
Ta
iwa
n
UK
S.
Ko
rea
S.
Afr
ica
Ge
rma
ny
Ch
ile
Ja
pa
n
Mé
xic
o
Po
lan
d
Ru
ss
ia
Arg
en
tin
a
Source: Merrill Lynch
MUTUAL FUNDS / GDP, %
NON-LIFE INSURANCE / GDP, %
High potential in non-lending productsFinancial System
Figures as of December 2005
13
• Branches per 10,000 Inhabitants
• Nº Account per Inhabitants
• Nº ATM per 1,000 Inhabitants
• Nº Cards per 1,000 Inhabitants
• Credit Card
• Debit Card
• Nº Transactions per Inhabitant
• Checking
• Payments with Cards
5.3
2.4
0.8
1,122
1,055
38
87
6.6
1.4
0.7
529
910
23
45
0.75
0.3
0.2
80
338
6
13
1.3
0.4
0.7
233
607
137
8
1.0
0.1
0.2
176
200
19
4
UK Europe Mexico BrazilChile
Low penetration levels even compared to regional peers
Source: División América, Grupo Santander Central Hispano for Chile, EU, Mexico and Brazil. Bank for International Settlements for
US and UK
3.6
n.a
1.3
4,384
902
126
126
US
Financial System
14Main points
■ Chile: a sound and fast growing economy
■ A financial system with high growth potential, especially in retail banking
■ Santander Santiago: Chile’s leading retail franchise
■ Strategic focus: increase profitability by expanding retail banking activities. 2005 & 1Q06 results in line with this goal
■ Positive 2006-07 outlook
15
* Time deposits + checking accounts + mutual funds
Amount Rank
Assets US$ 28.5 bn. 1
Loans US$ 19.1 bn. 1
Client funds* US$ 19.9 bn. 1
Net income (1Q 06) US$ 124mn. 1
Branches 361 1
ATMs 1,395 1
Customers 2.2 mn. 1
Figures as of 3.31.06
A strong competitive position in the Chilean marketSantander Santiago’s franchise
Santander is leader in profitability, size and efficiencySantander is leader in profitability, size and efficiencySantander is leader in profitability, size and efficiencySantander is leader in profitability, size and efficiency
16
Largest client base with low penetration levelesFigures for middle-upper & upper income individuals, as of 2005
1 out of 3 clients has checking account
1 out of 3 clients has credit card
1 out 10 clients has consumer credit
Within clients with checking accounts:
1 out of 10 has a mutual fund
1 out of 5 has a mortgage
Santander Santiago’s franchise
17
8%
47%
18%
17%
10%
Core revenues by segment*
* Core revenue : net interest income + fees
** SMEs includes Institutional Lending
2%
42%
14%
23%
20%
Loans by segment
Individuals
Middle Market
SMEs**
Corporate & Treasury
Strong retail banking activities
56% Individuals + SMEs56% Individuals + SMEs
Individuals
Middle Market
SMEs**
64% Individuals + SMEs64% Individuals + SMEs
Santander Santiago’s franchise
Other2% Other
8%Corporate & Treasury
Figures for 2005
18
BIS RATIO (April 06)*BIS RATIO (April 06)* 12.9% 12.9% TIER ITIER I 9.3% 9.3% TIER IITIER II 3.6% 3.6%
BIS RATIO (April 06)*BIS RATIO (April 06)* 12.9% 12.9% TIER ITIER I 9.3% 9.3% TIER IITIER II 3.6% 3.6%
Santander Santiago has the best risk rating in Latin America:
S&P: “A”, Fitch: “A”, Moody’s: “Baa1”
Moody’s Financial Strength: “B-”; Top 5 among emerging banks.
Outlook: Positive
CapitalStrong capital base to support growth
A unique position to benefit from an expanding retail marketA unique position to benefit from an expanding retail marketA unique position to benefit from an expanding retail marketA unique position to benefit from an expanding retail market
* Ex-dividend
19Main points
■ Chile: a sound and fast growing economy
■ A financial system with high growth potential, especially in retail banking
■ Santander Santiago: Chile’s leading retail franchise
■ Strategic focus: increase profitability by expanding retail banking activities. 2005 & 1Q06 results in line with this goal
■ Positive 2006-07 outlook
20
Strengthening our leadership in retail banking
Santander Chile: Strategic Focus 2006-2008
1. Growth above competition in retail banking
2. Increase client base and cross-selling by improving client services and expanding distribution network
3. Improve efficiency through gains in productivity and cost control in order to help finance investments in retail
4. Proactive management of asset quality in order to balance growth in retail banking with normalization of provision expense levels
Strategy
21
Loans, Ch$ billion
1. Growth above competition in retail bankingStrong growth in lending to individuals and SMEs
4,4344,689
4,9645,300
5,6055,866
4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06
Retail Loans
25.1%
VolumeCh$ bn
% Chg.YoY
Individuals 4,372 23.3% Consumer 1,480 28.0%
Mortgage 2,381 26.5%
SMEs 1,495 30.7%
Retail 5,867 25.1%
Institutional 183 16.2%
Middle-Market 2,125 14.5%
Corporate 1,428 4.3%
Total* 10,737 17.8%
* Total Loans includes Other non-segmented loans
22
Gaining market share in key products
Source: Superintendence of Banks
Market share as of 03.31.06, % and YoY change in basis points
1. Growth above competition in retail banking
Share % Chg. bp
Individuals 25.3 +80Consumer 25.7 +40Mortgage 25.1 +90
Corporate & Middle market 21.9 -50Commercial 20.7 +0Leasing 31.5 +140Foreign trade 19.6 -140
Total Loans 23.0 -10# Checking accounts 25.6 +200# Credit cards 37.7 +110
23
Quarterly net interest income (Ch$ million) and margins*(%)
Better asset mix improves the net interest margin
* Net interest income + foreign exchange transactions / Average earning assets
1. Growth above competition in retail banking
118,148141,120
1Q 05 1Q 06
1Q 05 1Q 06
+19.4%
4.15%
4.37%
475,973548,563
2004 2005
2004 2005
4.52%
4.74%+22 bp
+15.3%
+22 bp
24
2 . 0 4 2
2 . 2 8 6
M a r - 0 5 M a r - 0 6
2. Increase client base and cross-selling
217
280
Mar-05 Mar-06
TOTAL CLIENTS
11.9%
4 04 6
M a r - 0 5 M a r - 0 6
29.0%
CROSS-SOLD CLIENTS W/ CHECKING*
* Clients that use 4 or more products including checking (excludes Santander Banefe) ** Santander Banefe: clients that use 2 or more products including a transactional product
CROSS-SOLD BANEFE**
1 9 5
2 8 1
M a r - 0 5 M a r - 0 6
44.2%16.7%
CROSS-SOLD SMEs*
Clients, thousand
A larger and more profitable client base
25
Larger and more profitable client base drives fee growth
2. Increase client base and cross-selling
Fee income, Ch$ billion
Fees over cost ratio reached record level of 55.6% in 1Q 2006Fees over cost ratio reached record level of 55.6% in 1Q 2006Fees over cost ratio reached record level of 55.6% in 1Q 2006Fees over cost ratio reached record level of 55.6% in 1Q 2006
26
Costs under control. Growing efficiently
3. Improve efficiency
Efficiency ratio, %
Record efficiency ratio in 1Q 2006Record efficiency ratio in 1Q 2006Record efficiency ratio in 1Q 2006Record efficiency ratio in 1Q 2006
1Q05 1Q06Chg. 06 / 05, %
Personnel & Adm. 55,772 59,841 7.3%
Amortizations 8,726 9,076 4.0%
Total 64,498 68,917 6.9%
41.8% 39.1% 39.9% 45.6%38.3%
1Q05 2Q05 3Q05 4Q05 1Q06
Efficiency Ratio & Operating Expenses
27
Expanding our distribution network
3. Improve efficiency
ATMsBRANCHES
3 1 5 3 1 6 3 2 7 3 3 53 5 2 3 6 1
4 Q 0 4 1 Q 0 5 2 Q 0 5 3 Q 0 5 4 Q 0 5 1 Q 0 6
1 .1 9 0 1 .1 8 7 1 .2 2 51 .3 2 2
1 .4 2 2 1 .3 9 5
4 Q 0 4 1 Q 0 5 2 Q 0 5 3 Q 0 5 4 Q 0 5 1 Q 0 6
+45 (14.2%) +208 (17.5%)
Strengthening distribution capabilities
Bank: 15-20 new branches a year
Banefe: 15-20 new branches a year
Complementary channels (Internet, ATMs, Call Center)
28
Sound asset quality
Provision expense expected to grow in line with retail activityProvision expense expected to grow in line with retail activityProvision expense expected to grow in line with retail activityProvision expense expected to grow in line with retail activity
4. Proactive management of asset quality
Provision expense, Ch$ million
16,99512,109
17,793 16,635
25,471
0.95%
0.75%
1Q05 2Q05 3Q05 4Q05 1Q06
Provision Expense Ch$ million & % of loans
0.93
1.38
135.1 145.2
31.03.05 31.03.06PDLs Coverage
PDLs and Coverage ratio, %
29
2 1 , 12 3
1 8 , 3
2 3 , 7
1 9 , 51 8 , 5
S a n t a n d e r P e e r G r o u p S y s t e m
ROE 2005 2006
* As reported by the Superintendence of Banks; unconsolidated figures. Peer Group: Banco de Chile, BCI, Corpbanca & BBVASource: Superintendence of Banks
260 bp -350 bp 20 bp
4 3
5 7 , 2 5 3 , 4
4 0 , 1
5 5 , 7 5 1 , 7
S a n t a n d e r P e e r G r o u p S y s t e m
COST / INCOME
-290 bp -150 bp -170 pb
4 , 3
3 , 33 , 9
4 , 7
3 , 44 , 1
S a n t a n d e r P e e r G r o u p S y s t e m
NET INTEREST MARGIN
4 5 , 74 1 , 2
3 2 , 5
5 4 , 6
3 7 , 6 3 5 , 7
S a n t a n d e r P e e r G r o u p S y s t e m
FEES / COSTS
40 bp 10 bp 20 bp 890 bp -360 bp 320bp
Solid ratios compared with competition*Ratios as of 3.31.06. YoY increase in basis points
Overall Performance
30Main points
■ Chile: a sound and fast growing economy
■ A financial system with high growth potential, especially in retail banking
■ Santander Santiago: Chile’s leading retail franchise
■ Strategic focus: increase profitability by expanding retail banking activities. 2005 & 1Q06 results in line with this goal
■ Positive 2006-07 outlook
31Positive Outlook 2006-07
A growing and sound economic environment should sustain growth in 2006-07
We will continue to deepen our strong competitive advantages in retail banking in terms of client base, distribution and clients service
Growth in retail banking should help to sustain our high margins and push fee income
World class efficiency levels should improve. Economies of scale, further productivity initiatives and top of the line systems (Altec-Altair) should allow us to grow efficiently
Asset quality should remain under control. Provision expense should move in line with retail activities