2018 Outlook

Our estimates contemplate real loan growth of 2.2% and 3.0% for 2017 and 2018, respectively. Compared to historic levels, these results are weak -particularly for 2017- and well below our initial estimates. Persistent deceleration as evidenced throughout the year (resulting in downward revisions of GDP), in addition to bleak macroeconomic conditions, yielded results below our initial estimates.

Our baseline scenario for 2018 contemplates 2.8% inflation, normalizing by 2019, consistent with a MPR expected to remain at current levels until mid-2018

We highlight the positive performance of Banco Santander from a strong operational efficiency standpoint, further boosting the company’s ROAE. In line with the above and its broad capacity to meet Basel III requirements versus its peers, Banco Santander is our sector top pick.

We have incorporated into our forecasts the requirements to meet Basel III standards, which include: regulatory capital requirements, a capital conservation buffer and additional capital requirements.

Risks

Risks would be mainly associated to: i) implementation of the new Chilean General Banking Law (currently under revision), aiming to align regulatory capital requirements with Basel III standards, which not only focus on quantity of capital but rather on higher-quality capital, to be implemented within 5 to 6 year period starting in 2019; ii) macroeconomic drivers, which could differ from our baseline including growth, recovery of confidence and inflation; and iii) upcoming presidential elections.

Peers