For years, the two largest private banks in the country fought inch by inch for market shares, and their sizes, profitability levels and profits were similar. However, a series of aspects and decisions led to their differences widening. From the end of 2019 to dateBanco de Chile’s stock rises 45%, but Santander’s only rises 9.8%.
And those data reflect key aspects for investors, such as profitability. According to data from the Financial Market Commission, if at the end of 2019 Santander had a Return on Equity (ROE) of 16.02% and profits of $554,176 million, Banco de Chile had a ROE of 16.81% and a last line of $593,009 million. QBut at the end of 2023, Santander’s return reached 11.37% and profits reached $496,404 million, while the entity controlled by Citi and the Luksic family reached figures of 23.75% and profits of $1,243,634 million .
Part of the explanation lies in the investments in bonds that Santander had to make in 2021, this to comply with regulatory requirements affected its indicators in the midst of the fall of the fixed income market, something that in fact Citi highlighted at the beginning of the year, by pointing out that “We highlight that accumulated losses in valuation adjustments (mark-to-market in the available-for-sale book that impacts equity) have continued to increase during the fourth quarter of 2021 (-$577 billion, 3Q21 -$539 billion) ”.
And the figures have also resulted in market capitalization: Today Banco de Chile is worth US$11,704 million and Santander is worth US$8,962 million (from US$8,807 million and US$8,720 million in 2019).
But that’s only part of the problem. Added to this were the negative effects that the FCIC had on Santander, a measure implemented by the Central Bank to counteract the effects of the pandemic on the economy. In return, the Bank of Chile was favored. However, both effects are in retreat, and the market is betting on a normalization of the return in Santander, which could bring them closer again.
In the presentation of its first quarter results, Banco de Chile pointed out that ““Our long-term ROAE target is around 18%, but we anticipate ROAE to remain above this level in the near term, around 19% in 2024.” On the other hand, in his guidance 2024, Santander advanced an ROE “recovering towards normalized levels, reaching 15-17%.
The profitability of both banks was commented on in Credicorp Capital’s latest recommended portfolio report, where it stated that Santander reported a monthly profitability of 20.3% in April, recovering from the quarterly profitability of 11.3% in the first quarter of 2024, which was explained “by an increase in the entity’s margins due to having lower funding costs and a lower negative position of interest rate derivatives associated with the FCIC ”.
Furthermore, he pointed out that “We hope that the following quarters will bring good news for the bank, which should approach the medium and long-term profitability range between 18%-19%.”
Along these lines, in its report on quarterly results, Citi commented that the ROE of the entity controlled by Spanish capital was “below our expectations”, however they indicated that they expect a recovery in profitability for this year.
Meanwhile, for Banco de Chile, Credicorp commented that although the share trades close to its fair value, “The entity continues to surprise on the upside in terms of net profit and profitability, which would suggest that the normalization of results would take a little longer than initially expected.”
Along these lines, they detailed that after an ROAE of 23% in the first quarter, in monthly terms it reported an index of 25.5% for April, which shows that the entity “continues to be the most resilient entity in the current context, since it maintains returns much higher than its peers, even considering the impact of the expiration of the FCIC.”
According to Renta4’s comparative bank report, Banco de Chile ranked first in the system measured by ROE, followed by Banco Security with 20.1%, well above the profitability of Banco Santander, which ranked third with a profitability of 13.6%. And furthermore, he specified that “When contrasting the ROE with the Stock/Book ratio, we see that Banco de Chile is trading with a B/L ratio of 2.07 times, the highest ratio of all banks, which is justified by having the highest ROE of the sample of banks”.
Counting placements abroad, Santander’s participation in 2019 was 16.7% and Banco de Chile’s 15.5%, but in 2024 it is 15.9% and 14.8%, respectively.
