Banco Santander Chile Announces Second Quarter 2009 Earnings

SANTIAGO, Chile -

Banco Santander Chile (NYSE: SAN; SSE: Bsantander) announced today its unaudited results for the second quarter of 2009. These results are reported on a consolidated basis in accordance with Chilean GAAP(1, 2) in nominal Chilean pesos.

In 2Q09, net income attributable to shareholders totaled Ch$107,391 million (Ch$0.57 per share and US$1.12/ADR). These results represent an increase of 40.1% compared to 1Q09 (from now on QoQ) and 4.1% compared to restated 2Q08 figures (from now on YoY). Compared to historical figures (not adjusted for the new accounting standards), net income attributable to shareholders increased 36.9% YoY in 2Q09.

With these results the Bank’s ROAE in the quarter reached 28.7%. The Bank currently has the highest ROE among the banks operating in Chile. This strong profitability was achieved despite having one of the highest levels of capitalization in the Chilean financial system. As of June 30, 2009, the BIS ratio reached 15.1%. In April 2009, the Bank paid its annual dividend of Ch$1.13/share, equivalent to 65% of 2008 earnings attributable to shareholders (not restated for IFRS). At the record date, in Chile, the dividend yield was 6.3%.

Core revenues, that is, net interest income plus fee income, was up 16.4% QoQ and 2.9% YoY in 2Q09 despite the challenging operating environment faced by the Bank. Net interest income increased 21.0% QoQ and 2.9% YoY. The Bank’s net interest margin reached 6.0% compared to 4.8% in 1Q09 and 6.2% in 2Q08. Lower deflation in the quarter, lower funding costs and rising spreads boosted this expansion. Net fee income increased 2.5% QoQ and 3.0% YoY in the same period. The Bank designed different strategies to promote fee growth in the quarter despite lower economic growth and regulatory changes. Notable was the sequential growth of fee income from key products such as: (i) asset management fees which were up 22.0% QoQ, (ii) insurance brokerage 41.8% QoQ and (iii) fees from brokerage which rose 39.8% QoQ. This more than offset the contraction in fees from checking accounts and lines of credit that were negatively affected by recent regulatory changes.

In 2Q09, the Bank’s net provision expense increased 5.6% QoQ and 36.3% YoY. The evolution of net provision expense is directly related to negative effects of the economic downturn on asset quality. This higher provision expense resulted in an increase in coverage ratios. The coverage of past due loans (PDLs, all installments and lines of credit more than 90 days overdue) reached 172.8% as of June 2009 and improved from 166.2% as of March 2009 and June 2008. As of June 2009, the coverage of non-performing loans (NPLs, all loans with at least one installment over due > 90 days) reached 75.7% compared to 71.6% as of March 2009.

Despite the weakening of asset quality in 2Q09, there have been signs that the velocity of deterioration has subsided. In 2Q09, the Bank continued to focus loan growth in low risk segments in order to contain asset quality. At the same time, commercial executives continued to dedicate an important percentage of their time to asset quality issues and recoveries. As a result of these measures, the growth rate of early non-performance (<90 days) has evolved positively, total charge-offs decreased 6.8% QoQ, loan loss recoveries increased 20.9% QoQ while NPLs have decreased 9.6% since their peak in April 2009.

The Bank continued to effectively control costs in the quarter. In 2Q09, the efficiency ratio reached a record low of 31.5% compared to 34.5% in 1Q09 and 37.0% in 2Q08. YoY operating expenses decreased 5.7%, driven by a 6.8% decrease in personnel expenses and a 1.8% fall in administrative expenses. With this positive evolution of costs, the Bank consolidated its position as one of the most efficient banks in the Emerging Markets.

In summary, net operating income increased 36.2% QoQ and 10.8% YoY in 2Q09. The strategy of focusing on selective loan growth, improving the funding mix, higher spreads, increasing product usage and controlling costs, offset the negative effects of rising credit risks.

The Bank continued with its approach to selective loan growth, given the more difficult economic environment. On the retail side, total loans to individuals decreased 0.4% QoQ and increased 4.3% YoY. Following our strategy of growing selectively, loan volumes to the mid-upper income segments continued to expand at a rapid pace in the quarter. Lending to middle-upper income segments increased 4.0% QoQ and 19.5% YoY and represented 58.7% of total lending to individuals as of June 09 (compared to 52.2% in June 08). In the rest of the segments loan volumes continued to descend on a QoQ basis mainly due to credit risk reasons and our strict focus on profitability over market share concerns.

The Bank also continued to focus on maintaining healthy liquidity and a strong funding base in the quarter. In the period, short-term rates fell sharply as the central bank loosened its monetary policy. However, customer funds, that is, demand and time deposits and mutual funds, remained stable QoQ and YoY. The Bank let its more expensive time deposits to expire and funneled those funds to mutual funds, which is a more profitable product. As a consequence, total customer deposits decreased 2.9% QoQ and mutual funds under management increased 8.4% QoQ. The loan to deposit ratio improved to 94.3% from 96.5% in 1Q09 and 93.2% as of 2Q08.

In the first half of 2009 (1H09), net income attributable to shareholders totaled Ch$184,043 million (Ch$0.98/share and US$1.90/ADR). The ROAE reached 24.5% and the efficiency ratio reached 32.9% in the period. Core revenues were up 2.0% compared to 1H08, while operating expenses decreased 1.8%. This was partially offset by the 41.7% rise in provision expense. As a consequence, net operating income grew 1.7%. Net income attributable to shareholders decreased 2.7% YoY due to the higher effective tax rate.

Net income attributable to shareholders increased 19.4% in 1H09 compared to non-restated 1H08 net income.

Institutional Background

As per the latest public records published by the Superintendency of Banks of Chile for June 2009, Banco Santander Chile was the largest bank in terms of loans and deposits. The Bank has the highest credit ratings among all Latin American companies, with an A+ rating from Standard and Poor’s, A+ by Fitch and A1 by Moody’s, which are the same ratings assigned to the Republic of Chile. The stock is traded on the New York Stock Exchange (NYSE: SAN) and the Santiago Stock Exchange (SSE: Bsantander). The Bank’s main shareholder is Santander, which controls 76.91% of Banco Santander Chile.

Banco Santander, S.A., (SAN.MC, STD.N), headquartered in Madrid, engages primarily in commercial banking with complementary activities in global wholesale banking, cards, asset management and insurance. Santander had over EUR 1.168 trillion in funds under management at the close of 2008, from more than 80 million customers served through 13,390 offices — more branches than any other international bank. Founded in 1857, Santander is the largest financial group in Spain and Latin America and has a significant presence in Western Europe and in the United Kingdom. In 2008, Santander registered EUR 8,876 million in attributable net profit, an increase of 9% from 2007, excluding capital gains.

In Latin America, Santander manages over US$200 billion in business volumes (loans, deposits, mutual funds, pension funds and managed funds) through 6,089 branches. In 2008, Santander reported EUR 2,945 million in net attributable income in Latin America, up 10% from the previous year.

(1) Safe harbor statement under the Private Securities Litigation Reform Act of 1995: All forward-looking statements made by Banco Santander Chile involve material risks and uncertainties and are subject to change based on various important factors which may be beyond the Bank’s control. Accordingly, the Bank’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Bank’s filings with the Securities and Exchange Commission. The Bank does not undertake to publicly update or revise the forward-looking statements even if experience or future changes make it clear that the projected results expressed or implied therein will not be realized.

(2) In 2009, banks in Chile adopted accounting standards in line with international standards (IFRS) and historical figures in the rest of this report have been re-stated to make them comparable. All figures and variation presented below are based on 2Q08 and 1H08 figures that have been restated in line with new accounting standards adopted in 2009.

Website: www.santander.cl

Source: Banco Santander Chile

Robert Moreno, Manager, Investor Relations Department, Banco Santander Chile, +(562) 320-8284, Fax: +(562) 671-6554, rmorenoh at santander.cl