Banco Santander-Chile (BSAC) Management on Q1 2022 Results - Earnings Call Transcript

Apr. 30, 2022 5:14 AM ETBanco Santander-Chile (BSAC)
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Banco Santander-Chile (NYSE:BSAC) Q1 2022 Earnings Conference Call April 29, 2022 11:00 AM ET

Company Participants

Emiliano Muratore - Chief Financial Officer

Claudio Soto - Chief Economist

Robert Moreno - Managing Director and Head of Investor Relations

Conference Call Participants

Tito Labarta - Goldman Sachs

Alonso Garcia - Credit Suisse

Ernesto Gabilondo - Bank of America

Carlos Gomez - HSBC

Yui Fernandez - JP Morgan

Juan Recalde - Scotiabank

Operator

Ladies and gentlemen, thank you for standing by. And I would like to welcome you to Banco Santander-Chile Q1 2022 Results Conference Call on 29th of April 2022. At this time all participant lines are in listen-only mode. The format of the call will be a presentation by the management team, followed by a question-and-answer session.

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

Emiliano Muratore

Good morning, everyone. Welcome to Banco Santander-Chile first quarter 2022 results webcast and conference call. This is Emiliano Muratore, CFO and I'm joined today by Robert Moreno, Managing Director and Head of Investor Relations, and Claudio Soto, Chief Economist.

Thank you for attending today's conference call. We hope you all continue to stay safe and healthy. The bank has continued with strong momentum into 2022 with a strong ROE and solid financial performance, thanks to our successful digital strategy, strong client growth, sound asset quality and impressive efficiency levels. As many of you probably already noticed in first quarter 2022 Chilean banks moved one step closer to adopted full IFRS accounting standards. With the adoption of IFRS 9 for valuating financial instruments with the exception of the methodology for calculating expected loss for credit risk, which is still calculated using the expected loss models defined by our regulator, the CMF.

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

When we get into our results, Claudio Soto will start with an update on the macro scenario beginning with Slide four.

Claudio Soto

Thank you, Emiliano. Since our last call, the pandemic in Chile has proceeded substantially and you can pay off a drop and sanitary restrictions have been lifted. After finishing 2022, 2021 significantly above trend the economy has begun it's slowed down a little earlier than expected. Monetary tightening by the Central Bank in the second part of last year a physical construction this year and political uncertainty has led to a moderation in domestic demand. These factors will continue pushing down the economy during the rest of 2022. The negative impact on global growth of the war in Ukraine, we’re also affect local activity.

All in all we expect GDP will grow by 1.5% this year as seen on Slide five. Inflation has continued increasing, the consumer price index CPI rose 9.4% year-on-year in March, its highest rate in more than 10-years. Behind this phenomenon, where global pressures are relatively weak currency and second round effects from past price hikes in the context of still abundant domestic liquidity.

Next few years also reflected the impact of the war in Ukraine, which pushed up local food prices. We estimate inflation will keep rising, until the end of the second quarter, reaching 11% after that it should be begin slowing down as global prices soften and local activity moderates. The Central Bank has continued tightening its monetary policy by raising the monetary policy rate 150 basis points in March, reaching 7%.

We expect the monetary authority will increase its policy rate by 100 basis point in the meeting next week and eventually by another 50 basis point in June. This implies finishing the hiking cycle with a monetary policy rate at 8.5% after that they should keep their rate on hold during the third quarter and begin cutting by the end of the year, as inflation and activity slowed down.

After the dovish tone in the monetary policy report published at the end of March. Short and medium term market rate adjust downward. However [Technical Difficulty] the high CPI in March, which significantly surpassed on the upside they increased again. The new government has ratified it's compromised to fulfill the current budget, which implies a substantial contraction in public expenditure this year.

While it might be detrimental to grow that will help contain inflationary pressures and a further increase in public debt. Recently the Ministry of Finance announced an agreement with the Central Bank -- sorry, with a Central Workers Union to increase the minimum wage by 14% and effected with cash transfer to low income families were about $350 million to compensate for the loss of value of the currency. This package will be financed through adjustment in the budget. Without increasing total expenditure. Also to legal initiative, allowing for new pension fund withdrawals were rejected in Congress. Similar proposal should not be discussed anytime soon, reducing the risk of market, new liquidity indexes

Going to Slide six, because the constitution of process is in its latest stages. They are still key element to be defined, an adjustment to the trust in the so-called our monetization commission. Next is Referendum, which will take based on September 4 this year will reduce uncertainty. However, in case that the approved option wins there will still be a large transition period to implement the new constitution. In case that they reject option wins it is likely that important amendments to the current constitution will take place.

Emiliano Muratore

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

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

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

And the Loyal Life’s clients are also rapidly monetizing with gross income around $30 million in the first quarter, a 62% increase, compared to the same quarter of last year. Demand deposits remained high at $1.1 billion, a 53% increase surpassing by many times the amount clients have deposited in similar competing platforms. On the loan side, Life Clients had a total of $310 million in consumer loans, increasing 38% in consumer credit and 98% in credit card loans. These clients are also beginning to purchase other products such as, mutual funds and time deposits -- time thought deposits, which have grown 77% year-on-year and 161% respectively.

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

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

On Slide 12, we showcase our two most recent digital initiatives to help support micro entrepreneurs. Prospera and Cuenta Pyme Life, these two projects are in the incubation stage as we test different platforms and customer segments. Prospera is for non-incorporated individuals, they need a current account for their business. Mainly focused on transactionality with a small monthly fee and a one-time payment for the mobile POS, these clients are rapidly using multiple products from the get go. With access to a current account with unlimited free transfers and no limits to their monthly balance.

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

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

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

On Slide 15, you see how the bank continues its process of transforming the branch network, focusing on the Workcafe model and closing less productive branches. As the pandemic disease, we have begun to reopen the Cafe and co-working areas welcoming in again both customers and non-customers to these unique branches. Overall, our brand strategy coupled with our digital initiative is driving an important rise in productivity. With volumes per point of sale increasing 12.2% year-over-year and volumes per employee increasing 10.8% year-over-year. The Workcafe community already has 155,000 members and 5,500 shops. In the last year this platform helped over 25,000 shops or businesses create their website and shopping cart to sell online.

Moving forward to Slide 16, we show our 10 responsible banking commitments, which we spoke about in our Santander ESG talk last year and their progress. We continue to make significant progress in all of our commitments, increasing the amount of women and leadership positions and lowering the gender gap -- pay gap. In the social front, we have financially empowered 1.8 million people as of March and supported 281,000 through our community programs. On the environmental front, we already eliminated what all of our single-use plastics and as of March 2022, we have close to $470 million and sustainable financing on our loan book. We have also really begun construction of our solar power plants.

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

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

In the first quarter of 2022 net income attributable to shareholders increased 29.5%, compared to the same quarter of 2021 and totaled MXN5.7 billion. Our ROE in the quarter reached 25.6%. These strong results were mainly driven by our client activities as reflected in the increase of 21.5% in the net income from our business segments, which excludes taxes, voluntary provisions and the impact of inflation on results. All business segments saw better results with retail banking's net contribution increasing 107%, middle market results, up 23.5% and CIBS profits rising 54%.

On Slide 20, we review our loan book, which grew 0.6% Q-on-Q and 6.8% year-over-year. Loans to individuals increased 9.7% year-over-year and 1.9% Q-over-Q with loan growth in this segment being driven by high yielding auto loans, which grew 57.5% year-over-year. Mortgage loans grew 11.7% year-over-year and 2.0% Q-over-Q growth in this product was mainly driven by the higher UF inflation rates that resulted in a positive translation impact on mortgage loans. New mortgage loan originations fell as inflation and rates increased in the quarter.

During the quarter our CIBS segment continue to experienced strong growth of 6.5% Q-over-Q, as the economy reopened and large corporate site funding in the form of corporate loans as the bond market remains liquid.

On Slide 21, we show the evolution of our funding mix. Total deposits increased 2.8 year-over-year and decreased 3.5% Q-over-Q. After a strong increase in non-interest bearing deposits in previous quarters, due to the success of our digital platforms and the excess liquidity from state aid and pension fund withdrawals, we have started to see our clients either spend their liquidity or shipped it to time deposits as rates rise. The decrease in retail demand deposits was partially offset by the 30% Q-on-Q increase in corporate demand deposits. As a result time deposits only increased 0.3% Q-over-Q.

Despite, this proactive stance regarding funding cost, we still expect average funding cost to continue to rise as the monetary policy rate continues to go up. These higher rates will be eventually transferred to our loan book, but given that our interest bearing liabilities have a shorter duration than our interest earning assets, funding costs will go up first.

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

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

As we can see on Slide 24, these positive asset quality indicators, led to a cost of credit of 0.8% for the first quarter of 2022. During the quarter, the Board did not recognize reverse any additional or voluntary provisions. Non-net interest income trends were also very positive in the quarter, as we show on Slide 25 fee. Fee income increased 17.1% year-over-year, driven by higher client activity and the growth of our client base, which led to growth across most products, thanks to our digital strategy with our key products, such as Life, Getnet and our Insured Tech platforms, compared to the fourth quarter of ‘21 fees showed some seasonality with less card transactions, due to the vacation season in Chile.

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

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

Bank is currently carrying out, it's 260 million digital investment plan for the years 2022-2024, mainly focused on digital initiatives both at the front and back end of operations. Other operating expenses decreased 11%. During the pandemic, the bank had established greater provisions for contingencies and operating risks, which have not been repeated in the first quarter, leading to a fall and this item.

Okay, moving on to Slide 27, we now analyze our capital. As a reminder since year-end 2021, we are now reporting under discreet at the end of the first quarter, the bank reported a core equity ratio of 10.4% and a total BIS ratio of 16.8%. Our fully loaded ratios were 10.7% and 17.1% respectively. During the quarter the CMF set our Pillar II requirement at 0%. All in and considering all the different buffers the minimum CET1 ratio we much achieved by 2025 is 9.5% and we are currently above this level on the slide it is 10%, but that's a typo, it's 9.5%.

As a result of the strong capital levels and as we show on Slide 28, we paid in April of this year our highest dividend ever of MXN2.47 per share, 50% higher than last year's dividend with an attractive yield of 5.5%. Finally on Slide 29, we are updating our guidance for 2022. Strong results in one -- the first quarter and the evolving macroeconomic situation has led us to update our guidance for this year. Our base scenario now assumes a GDP growth of around 1.5% with an inflation rate of around 9%. This should lead to loan growth of 8% to 10%. We have lowered our outlook for NIMs to 3.5% to 3.7% on the back of short-term interest rates rising more quickly than previously estimated.

On the other hand, our non-NII revenue should rise 10% to 15% and our outlook for the cost of risk remains unchanged at 0.9% to 1%. Given our efforts with our digital strategy, we expect cost to grow below inflation. All in, we expect an ROE of 21% to 22% for 2022.

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

Question-and-Answer Session

Operator

Thank you very much. We will now move to the Q&A part of the call. [Operator Instructions] Our first question comes from Mr. Tito Labarta from Goldman Sachs. Please go ahead sir, your line is open.

Tito Labarta

Hi, good morning, Robert, thanks for the call and taking my question. I guess my question is on your margins a little bit. Just, I mean, I know you lowered the guidance a bit, because of the higher interest rates. But just to think maybe and how that's going to evolve, so do you think you kind of see that immediate impact next quarter from the higher rates and maybe some more margin pressure in the short-term, but let's say if inflation remains high, is there maybe some upside to that margin outlook in particularly maybe thinking going into 2023 that’s your inflation and expectations for then. But how you think that can continue to evolve, just given the dynamics between inflation and policy rates, if you can give some more color on that would be helpful.

Emiliano Muratore

Hello, Tito, this is Emiliano. Thank you for your questions. I mean, regarding, I mean the future for NIMs, I mean, second quarter shouldn't be, let's say significantly worse, it could be around the first quarter, because we already know the March inflation that which was high was like 1.9% for the month, so that's going to be a significant part of the US variation for the second quarter. We'll now -- next week the CPI for April and so the second quarter shouldn't be, let's say, bad in that sense, the second half could be the one bringing the headwinds and how hard the headwinds will be will depend on the combination of where the inflation stays and how the Central Bank reacts to that.

So that trends that trending down of NIMs should come in the second half and maybe with the third quarter being dependent on the timing of the Central Bank decisions on most of the inflation figures, but maybe the fourth quarter -- the third quarter could be the bottom. And then in the fourth quarter, when the Central Bank might start cutting rates depending on the evolution of inflation and activity. We can start to see like every balance in that sense.

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

Tito Labarta

Great, thank you, Emiliano, that's helpful and then looking here your inflation forecast for 2023, 4.4% with the month every positive rate coming down to 4.75% in that scenario. How do you think about your margin should that come -- can it remain stable, let's say, the second half of 2022, could you get --

Robert Moreno

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

Tito Labarta

Okay. And would it be more stable would say the second half of the year when you see the pressure or there to be a little bit of upside.

Robert Moreno

No, no, we don’t know for the --

Tito Labarta

With the full-year. Okay, all right, perfect. That's helpful. Thank you, Emiliano.

Operator

Thank you very much. We'll now be moving to the next question from Mr. Alonso Garcia from Credit Suisse. Please go ahead sir, your line is open.

Alonso Garcia

Hi, good morning everyone. Thank you for taking my question. My question is on asset quality, I mean you continue to report healthy asset quality metrics across the different segments. And your guidance reinforces the positive outlook for asset quality. This year, but just wanted to ask, I mean how -- I mean the factor behind you feeling comfortable with asset quality remaining well under control this year in an environment of lower GDP growth, rising inflation, so just wanted to understand your -- what you're seeing in terms of asset quality in this environment? Thank you.

A - Emiliano Muratore

Okay. So with rising rates and higher inflation and lower growth, obviously there could be some pressures on asset quality. So we see what we did in the first quarter and if you look at the coverage ratios, I think it's more clear. Basically, there was some a little bit of increase in NPLs in consumer. But we basically used the coverage, so the coverage came down, but from like 600%, 500%. So -- and we didn't touch, first of all, we didn't touch any of the voluntary additional provisions basically in consumer lending as people, you know, have less liquidity and there might be some weakness or more than weakness I think consumer NPLs will slowly go back to where they were before the pandemic and the short social offers.

But we already have that very well covered and basically we've used coverage in that portfolio. So really shouldn't affect too much the cost of risk. Now in Chile as you know, a lot of our mortgages are all of our mortgage are index to inflation and for the back book, the increase in rates for the back book doesn't effect, because the real rate is fixed over the life of the mortgage, but obviously the variable part of people's mortgage instalments comes from the increase in inflation. So I think there could be some risk there.

Now, when you look at the figures in the first quarter, asset quality and mortgage did very well. But to be prudent in what we did is that we did increase the coverage and mortgage. So the increase in provisions in the quarter were mainly through mortgages even though mortgages asset quality remain very good. We increased mortgage, I think to the highest coverage we've had in many years to 130% that's out -- that's excluding the value of collateral. So basically, we've covered around two years of future potential charge-offs. So I think that's the benefit of having high coverage that we basically tweaked a bit the coverage ratios among the different products. So that's why we were able to remain try and clear with our cost of risk outlook for the rest of the year given the current outlook for the economy, okay?

Alonso Garcia

Thanks. That's very clear. Thank you very much.

Operator

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

Ernesto Gabilondo

Thank you. Good morning everyone, thanks for taking my call. My first question is also in terms of loan growth and in terms of the macro expectations. So I agree with you on your expectations of 1.5% GDP growth for this year? However, if we go beyond that instead, look into 2023. Well, you still as continue to have a pension reform, then you need to however tax reform to finance it, and then you're having tighter fiscal and monetary policy. So just wondering how do you see the GDP growth expectation for 2023? And how can that translated into loan growth?

Emiliano Muratore

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

Yes, I mean, what Claudio mentioned in terms of nominal GDP being like in the mid single-digits and then I think that the multiplier of loan growth to that is not so easy to predict, I mean, considering where we are coming from the pandemic, the deleverage from the families, that expansion plan would roll out. So I would say that we’re going to be around those of mid single-digits maybe from 5% to 7% nominal growth to -- of loans coming from that 0% to 1% GDP growth and inflation being in the 4% to 5% range.

Ernesto Gabilondo

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

Emiliano Muratore

Yes, I mean we gave our 18% to 19% range for long-term ROE. I mean, we don’t change that them in the first half -- I mean first quarter and first half considering the inflation levels and that are showing above 20% ROE that we don’t -- we haven't changed our long-term expectations in terms of ROE, because at the end after this high inflation period, the inflation will converge, I mean the Central Bank will take rates down again and we can’t go back to the, say, a more normalized scenario of this 18% to 90% range.

Ernesto Gabilondo

Okay, perfect. Thank you very much.

Operator

Thank you very much. We will be moving to the next caller. The next question comes from Mr. Carlos Gomez from HSBC. Please go ahead sir, your line is open.

Carlos Gomez

Yes, hello, good morning. I wanted to ask you about the impact of the withdrawls from the pension fund on your business now and in the future from what we read there has already been an increase in long-term mortgage rates and a reduction in terms and which at the banks lend. How did you see that evolving? And how you see that impacting loan growth in the long run? And second I wanted to ask about the decline in deposits that we have seen in the last two quarters. Again, I think it is related to the withdrawal from the pension fund, do you see that continuing and is funding a concern for the next two or three years? Thank you.

Emiliano Muratore

Hello, Carlos, thank you for your question. I mean, regarding the impact of the pension fund withdrawals, I think we are still seeing the effects of the withdrawals in the sense that there is still -- there is significant amount of liquidity around the system in terms of demand deposits and time deposits and also as you said, the fact that the pension funds needed to sell long-term assets in the market pushed long-term interest rates up that, that made mortgages -- new mortgages more expensive. So that reduced the demand for mortgages, and I would think that, that's going to be the case for a while, I mean, we don't see long-term rates falling sharply. So the -- then the level of new origination in mortgages for the next, I don't know 12 to 24 months definitely will be lower than the ones we had in the past.

It's also true that in nominal terms, the mortgage portfolio will be growing with inflation. So in terms of the nominal size of the portfolio, you can still have growth to the high single-digit numbers let's say supported by inflation. And also the effect of that withdrawals was like a reduction in the consumer loans demand. I mean people have liquidity, so they are demanding less credit, that's why you see like the numbers for us and for the system in consumer loans are modest or even falling, but that will change after people use the money they have and we see that happening more towards the end of this year maybe next year. What we are seeing in terms of deposit behavior is that we are seeing people first spending part of the money they have in their checking accounts.

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

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

Carlos Gomez

Okay, that's clear. Thank you.

Operator

Thank you very much. Our next question comes from Mr. Yui Fernandez from JP Morgan. Please go ahead sir, your line is open.

Yui Fernandez

Thank you all and thank you for the opportunity and congrats on the very strong ROE. I had a quick one regarding the number of clients, we saw some stabilization regarding loyal clients and digital clients. So just would like to know your view for this year, the thing is like the growth goes slow down. Are you seeing more competition for our clients? Or is this just seasonal like first Q versus first Q, so that's the first one. And a follow-up on funding, I totally understand that like funding is not an issue regarding the mouth, but how do you see them in the positive world, right, because they are still at the very high level, although they decrease this quarter, they are still, I don't know 62% of your total deposits?

And when you go back to the historical demand deposits they were around 40% of Santander total deposits. So how quickly we believe demand deposits were shrink, the thing is like a one, two year, again assuming all new pension withdrawing in Chile, right? Like how long do you think like pension -- sorry deposits may kind of normalized, because this has been a very good tailwind for banks. And I don't know, like with rates at seven and more. We could see, you know, like a quick shift here on demand deposits, so just want to hear your thoughts on this?

Emiliano Muratore

Thank you. Okay, so regarding clients and I think there's various factors, one is seasonality in the summer months always the things slow down a bit. The second factor is, we did do some changes as we always upgrading our site or app and there was a little bit of disruption there, we're always trying to boost cyber security and I think that affected in the very short-term. Our NPS, which we saw and the growth of digital clients, but I think it was momentary and now I think things are back on track. And the third, it's true that there is definitely more competition, there's a lot of good platforms. I think we're still leading in any case, we should see a client growth, especially digital client growth start to recover. As you know, as people adjust to the new format and the new cyber security features.

So we're already seeing in March and April that recovering. With the new products through life especially like what the Life -- I think that's going to be another game changer that's going to slowly gain momentum and getting that continues to the well. So overall I think if there's going to be more competition, we're going to start launching some new things in the next few quarters. All of that should give the boost again to client growth. So we still think that's going to move forward after a slight dip, especially in the digital side. It was basically in the month of January and February, March, there is already a pickup.

Claudio Soto

And regarding the mix of the basket or the trends for deposits going forward, I think, first, the Board has to mention that apart from the pension fund withdrawals and let's say all the fiscal hubs. Also we did a significant improvement in all the transactional business with company. So, if he goes to Slide 21, you could see there that the evolution of the retail part, individual loss on the corporate part, middle market and SCIB is quite different. So we are still keeping a significant part of the demand deposits coming from corporate.

Basically because apart from the let's say reasonable optimization of their margins and their financial business, that money is more related to the, kind of, let's say loyalty and the transactional relationship with the bank that still strong and we are positive going forward. It's also important dimension go into your mix between time deposits and demand deposits to go into some years before now that also there the system and also we had a significant pool of time deposits coming from institutional investors, I mean pension funds, I mean that's not going to come to come back. So I think that it's a long-term effect, where the share of demand deposits for the -- for us as total deposit will stay higher than the one we -- it was in the past.

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

Yui Fernandez

And also typically, the concern was inflation coming down and demand deposits coming down, right. That would be painful. And also guys, congrats on the new release, that's my final comment here, it was very good, like the new formations are bringing should they release. Thank you very much.

Emiliano Muratore

Okay, thank you for your comments, Yui.

Operator

Thank you very much. Our next question comes from Mr. Juan Recalde from Scotiabank. Please go ahead, sir.

Juan Recalde

Hi, thank you for taking my question. The question is regarding fee income growth, we saw very strong growth of around 17% year-on-year in the quarter? I was wondering how sustainable is this, and what is your expectation for fee income growth for 2022 and 2023?

Emiliano Muratore

Okay. Yes, so we've had, I think, probably one of the more better parts of our results have been the positive effects of all the growth in clients and in transactionality on fee growth. And we've seen fees grow across the board, and I think that's good news for the rest of the year. As a side now I remember that and as we mentioned in the management commentary in the script, we have to begin to absorb beginning in April, the new interchange fees, and that's going to cost us this year MXN29 billion. So basically April through December, so that will probably lower a bit. The ongoing growth of fees especially through cards, even though it should have a slight benefit for Getnet, so overall fee growth will probably not continue the trends we saw in the first quarter because of this, even though the other -- the non-credit card related products, which should continue to have a very good year, because of the increase in transactionality, okay.

So this 17% growth in fees will probably come down by the end of the year as we absorb these MXN29 billion, so that was probably around 8% or 9%. And the next year, once we have this absorbed we should go back to growth in the teens, because the client growth, the transactionality should continue to push fees. So this is kind of like a one-off that we absorbed this year and then we should continue growing. So we have them even though there are some pressure in margins as we mentioned, I think the fee part is quite clear.

And the other thing is that the treasury income -- treasury in the first quarter was like MXN57 billion, we have very good a client treasury non-client, which was a loss last year. Non-client treasury should be more or less positive or not repeating the loss. So when you add fees and the treasury, and I mean that's basically non-net interest income that should grow around 15% this year. So I think that, that's one of the positives we have this year. So even though we have to adopt the interchange fee, the rest of the fee products should grow well and our treasury should also have a good year and that should continue through next year as well.

Juan Recalde

That's very clear. Thank you for the comments.

Operator

Thank you very much. We have received three text questions. I will read them out individually. So the first one is, any potential regulatory risk for the bank to flag pertaining to constitutional convention?

Claudio Soto

Well, in term of the constitutional convention, it is hard to foresee right now. What are the specific implications for the financial industry in general. The constitutional is defining political rules is the final list of social right and then the working of the political system and the legislative and judiciary system. So it's hard to think right now too specific the impact on the financial industry. Regarding other type of regulations, one of the things that is going on right now is the fintech regulation that is being discussed with Congress another regulation to have it consolidated debt repository to -- that is something that has been discussed for many years already in Chile. But now it's a battle in congress.

Operator

Hey, thank you very much for that. The next text question considering the current economic slowdown, how do you see loan growth evolving in 2022, especially in the retail segment? Do you think loan growth of 8% to 10% is feasible in this context?

Emiliano Muratore

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

Operator

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

Emiliano Muratore

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

Operator

Okay, thank you very much. We have a final voice question from an individual analyst. This is Mike George will open the microphone, please go ahead, sir. Okay. I believe we have no further questions. And at this point, I'll pass the line back to the management team for the concluding remarks.

Robert Moreno

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

Operator

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

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