Annual Report 2017 FINANCIAL / SUSTAINABILITY #contribute to the progress of people and businesses Annual Report 2017 FINANCIAL / SUSTAINABILITY Annual Report 2017 1 2 3 04 Santander Chile today 26 Corporate governance 58 Risk management 06 Awards 2017 36 Business environment 66 Compliance 10 Letter from the 42 Strategic plan and value 72 Financial results Chairman of the Board creation 14 Letter from the CEO and 44 Business model Country Head 47 Business areas 20 Board of Directors 50 Technology and innovation 24 Administration 52 Sustainability at Santander Chile This annual report is also available online at www.santander.cl 4 5 6 92 Our team 134 Banco Santander 140 Glossary 102 Client at the center around the world 142 General information 114 Value creation for 136 Value creation at 148 About this annual report Santander Group shareholders 149 GRI indicators 138 Santander Group’s 120 Sustainable 156 Financial statements vision management of the supply chain 122 Our commitment to society 131 Environmental management Santander Chile Today 11% 19.2% 11,068 core capital ratio ROE employees 58,198 3.5 926 million US$ million in ATMs assets clients Banco Santander has Environmental sustainability 4 maintained a leading 2015 2016 2017 position adjusting its Paper consumption (tons.) 2,191 2,124 1,662 strategy to a changing Energy consumption (KwH) 33,404,726 30,865,037 29,604,845 and demanding Water consumption (m3) 210,439 154,068 107,074 environment. Total CO2 emissions 18.477 19.044 18.557 The commercial Land travel (mills. kms.) 3.3 2.5 2.5 transformation started Air travel (mills. kms.) 9,2 13,2 14,9 Electronic waste recycling 22,4 47,8 132 by the institution has (tons.) allowed it to achieve positive results and outstanding advances Social sustainability on the client side. Each 2015 2016 2017 one of the initiatives Nº grants 451 461 496 and efforts undertaken Santander Universities Nº collaboration 52 52 52 are coherent with agreements Employments for Universia 59,666 49,142 42,195 the Bank’s mission university students to contribute to the Sanodelucas Visits to web portal 785,836 962,234 994,668 progress of people and Nº corporate Community 1,051 225 492 businesses. volunteers Balance sheet and results (MM$) 2017 2016 Change 17/16 Balance sheet Commercial loans 13,908,642 13,867,465 0.3% Residential mortgage loans 9,096,895 8,619,356 5.5% Consumer loans 4,557,692 4,446,803 2.5% Loans and accounts receivable from customers 27,563,229 26,933,624 2.3% Provisions (815,687) (820,139) (0.5%) Total loans, net1 26,747,542 26,113,485 2.4% Financial investments2 3,785,893 3,785,893 0.0% Total assets 35,804,279 37,006,645 (3.2%) Total deposits 19,682,111 20,691,024 (4.9%) Issued debt instruments 7,093,653 7,326,372 (3.2%) Equity 3,108,063 2,898,047 7.2% Results Net interest income 1,326,691 1,281,366 3.5% Net fee and commission income 279,063 254,424 9.7% Total financial transactions, net 129,752 140,358 (7.6%) Net operating profit before provisions for loan losses 1,822,669 1,694,447 7.6% Provisions for loan losses (299,205) (343,286) (12.8%) Total operating expenses (806,551) (772,337) 4.4% Operating income 716,913 578,824 23.9% Net income 577,263 474,716 21.6% Net income attributable to equity holders 564,815 472,351 19.6% Profitability and efficiency 5 Net interest margin 4.42% 4.45% -3 pb Return over average equity 19.2% 17.0% + 228 pb Return over average assets 1.58% 1.33% + 25 pb Efficiency (cost / income) 41.0% 42.7% - 173 pb Recurrence (commissions / costs) 39.6% 37.0% + 255 pb Portfolio quality Annual Report 2017 Report Annual Cost of credit (provision expense / total loans) 1.08% 1.26% - 18 pb Non-performing loans / total loans 2.28% 2.07% + 21 pb Provisions / total loans (expected loss) 2.94% 3.02% - 7 pb Provisions / non-performing loans (coverage) 128.8% 145.4% - 1,663 pb Capitalization and balance sheet structure Effective equity / risk weighted assets 13.9% 13.4% + 48 pb Basic capital / risk weighted assets 11.0% 10.5% + 45 pb Basic capital / total assets 7.9% 7.2% + 70 pb Loans / deposits3 100.7% 92.1% + 857 pb Loans / total assets 74.7% 70.6% + 414 pb Structure Branches 385 434 (11.3%) Automatic teller machines (ATMs) 926 1.295 (28.5%) Employees 11,068 11,354 (2.5%) Customers4 3,512,502 3,516,113 (0.1%) 1. Does not include interbank loans. Gross of provisions./ 2. Includes trading and available for sale investments./ 3. Adjusted by the portion of mortgage loans financed with issued debt instruments./ 4. Latest available information. Awards 2017 Different organizations and 1 specialized media, in Chile and abroad, distinguished Banco Santander acknowledging a management of excellency in several areas. 1 2 BEST BANK IN THE WORLD, NUMBER 1 IN CHILE, BY ACCORDING TO THE BANKER EUROMONEY 6 Prestigious British magazine The Banco Santander was awarded 3 Banker –leader in banking and as Best Bank in Chile by reputed international finance information– English magazine Euromoney. It’s chose Banco Santander not only the fifth time over the last ten years 4 as Global Bank of the Year, but in which the Bank is awarded as EXCELLENNCY IN DIVERSITY also as Best Bank in Chile, Latin the most distinguished in the local MANAGEMENT America, Spain, Brazil, and Portugal. banking industry. Santander Group Advances in commercial banking, also obtained the award as Best Universidad de La Frontera together benefits for customers and the Bank in Latin America in Wealth with El Mercurio newspaper innovative use of technology, Management and Best Bank in the presented Santander Chile with the especially in relation with the offer World for SMEs. Excelencia Sin Frontera award, in of products more attuned with attention to diversity management. client's needs, were determinant for This for the launching of programs the award in our country, as well as 3 oriented towards talented youth and for the other distinctions. international mobility initiatives for BEST BANK IN CHILE BY our employees. LATINFINANCE LatinFinance magazine named 5 Santander Chile as Bank of the Year in the country. The publication BANCO SANTANDER IN THE DOW highlighted the efforts on the JONES SUSTAINABILITY INDEX corporate segment, which allowed 2017 the Bank to participate in the For the third consecutive year largest infrastructure deals, and Santander was included among especially the advances in retail the 27 companies that integrate banking with the deployment of the Dow Jones Sustainability index the Work Café branches and digital Chile (DJSI Chile). The Bank’s developments such as the digital permanent commitment with 2 Onboarding. sustainability through the respect for the environment and promotion of stable relations with customers, employees, shareholders, and the society, validated this distinction. 6 SANTANDER CHILE IN THE DOW JONES SUSTAINABILITY INDEX MILA 2017 Thanks to the high total sustainability score (TSS) from 8 RobecoSAM, Banco Santander Chile also integrated the Dow Jones Sustainability Index MILA Desarrollo and Inteligencia de institutions that stand out for (Integrated Latin American Negocios placed the Bank on the their commitment and economic, Markets), first index of the third place among 43 institutions social and environmental behavior. Pacific Alliance that measures that reached the global corporate Santander obtained ninth place economic, environmental and transparency standard. being distinguished with the Bronze social performance of Chilean, Seal. Colombian, Peruvian and 8 Mexican companies. From the 150 companies invited to the GREAT PLACE TO WORK 10 DJSI MILA, only 42 entered the Banco Santander moved from KORN FERRY EMPLOYEE definitive list, Santander Chile fourth to second place among ENGAGEMENT AWARDS 2017 being one of the seven listed banks companies with over 5,000 The Bank was presented with the in the 2017 index. employees, and from 18th to 12th Employee Compromise award place on the general raking in a total by the international consultant, of 50 companies. based on a global study and an 7 7 analysis of the employees of the TRANSPARENCY organizations. RECOGNITION 9 For the fifth consecutive year, TOP TEN IN BUSINESS Banco Santander was chosen SUSTAINABILITY 11 among the most transparent Banco Santander was the CARLOS VIAL ESPANTOSO companies in Chile. The ranking only bank to qualify in the AWARD prepared by KPMG, Chile 2017 Report Annual Business Sustainability Ranking In the last version of this important Transparente, Universidad del PROhumana 2017, which recognizes award, Santander received a special distinction for the implementation of a culture that privileges employee’s professional development through the Santander Academy. 12 SANTANDER ANNUAL REPORT DISTINGUISHED According to Informe Reporta, Banco Santander’s Annual Report was awarded with the second place in the ranking prepared by DEVA, that highlights leading companies part of the Indice de Precio Selectivo de Acciones (IPSA). As well, the Bank obtained the highest score of the financial industry and 6 was awarded with the first place in financial transparency. 13 BEST INVESTOR RELATIONS A survey conducted by El Mercurio Inversiones determined that Banco Santander has the best Investor Relations department (in the category of over US $1,500 in market capitalization). The survey 16 was conducted among 32 research managers, portfolio managers, local equity analysts and family office managers. prepared by GfK Adimark. Clients 17 value that the Bank is permanently SANTANDER PRIVATE BANKING adapting to their demands and AWARDED 14 highlighted its App as the best in the market.