Banco Santander-Chile(BSAC) - 2024 Q4 - Annual Report

Cybersecurity and Data Risks - The company faces significant risks from cyber-attacks on critical infrastructure, which could negatively impact its ability to service customers [128]. - If the company or its third-party vendors experience data breaches, it may incur substantial costs, including remediation costs and reputational damage, potentially affecting customer retention [129]. - The company relies on third-party vendors for essential services, which poses operational and regulatory risks, including potential service outages and security breaches [135]. Artificial Intelligence and Operational Efficiency - The company is integrating artificial intelligence (AI) and machine learning (ML) technologies across various operations, including fraud detection and risk management, to enhance efficiency [133]. - There are inherent risks associated with AI usage, including potential flaws in algorithms and legal challenges, which could adversely affect operational efficiency and brand reputation [134]. Credit Ratings and Financial Stability - Credit ratings are crucial for the company's funding costs; any downgrade in Chile's sovereign debt could lead to a similar downgrade for the company, increasing borrowing costs [144]. - Moody's maintained an A2 credit rating for Chile, while S&P changed its outlook from negative to positive, which could influence the company's credit rating [144]. - A downgrade in credit ratings could limit access to capital markets and adversely affect the company's commercial business and liquidity [146]. Reputational and Legal Risks - The company is exposed to reputational risks from various sources, including employee misconduct and negative media coverage, which could impact customer and investor confidence [138]. - The company must manage potential conflicts of interest effectively to avoid litigation and maintain client trust, which is critical for its financial health [141]. - The bank faces risks from legal and regulatory proceedings, with increased scrutiny leading to potential monetary judgments and enforcement actions [211]. Asset Quality and Loan Performance - The ratio of non-performing loans to total loans at amortized cost increased to 3.17% as of December 31, 2024, compared to 2.26% as of December 31, 2023, primarily due to increased risk in commercial and consumer loans [156]. - The allowance for expected credit losses for loans classified as financial assets at amortized cost was Ch $1,192,690 million, with a ratio of 2.89% to total loans at amortized cost as of December 31, 2024 [156]. - The deterioration in asset quality is concentrated in the construction and agricultural sectors, particularly affecting SMEs [156]. Liquidity and Funding Risks - Liquidity risk is heightened by over-reliance on specific funding sources and market-wide phenomena, which could adversely affect the company's operations [176]. - As of December 31, 2024, 98.4% of customer deposits had remaining maturities of one year or less or were payable on demand, indicating a reliance on short-term funding [179]. - Time deposits represented 25.0% and 22.8% of total liabilities and equity as of December 31, 2024 and 2023, respectively [179]. Economic Environment and Regulatory Changes - Chile's economy contracted by 6.1% in 2020 due to the COVID-19 pandemic, with growth slowing to 0.2% in 2023 amid high inflation and interest rates [216]. - The corporate income tax rate in Chile increased to 27% in 2018, with a new tax reform approved in October 2024 aimed at increasing tax revenues by 1.5% of GDP [223]. - The Chilean banking sector is subject to evolving regulations that may increase compliance costs and limit business opportunities [198]. Banking Operations and Market Position - The company is the largest bank in Chile in terms of loans and the second largest in terms of total deposits [271]. - The company offers a wide range of commercial and retail banking services, including mortgage financing and financial advisory services [272]. - Santander-Chile achieved a market share of 17.2% in deposits, ranking second among banks in Chile [303]. Financial Performance and Metrics - For the year ended December 31, 2024, Santander-Chile reported total loans and accounts receivable of Ch$ 41,323,844 million and net income of Ch$859,850 million [287]. - The efficiency ratio of Santander-Chile was 39.0% as of December 31, 2024, making it the second most efficient bank in its peer group [309]. - The return on equity for Santander-Chile was 19.7% as of December 31, 2024, positioning it as the second most profitable bank in its peer group [314]. Shareholder and Governance Structure - The controlling shareholder, Santander Spain, holds 67.18% of the company's shares, significantly influencing corporate governance [239]. - The company's common stock is traded on the Santiago Stock Exchange, with approximately 32.8% of outstanding shares held by the public [242]. - The company is governed by Chilean corporate law, which may provide fewer rights to shareholders compared to other jurisdictions [249].