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Banco Santander-Chile (BSAC 0.66%)
Q3Â 2019 Earnings Call
Oct 30, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Banco Santander Chile Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. (Operator Instructions)
I would now like to hand the conference over to your speaker, Mr. Emiliano Muratore, Chief Financial Officer. Please go ahead, sir.
Emiliano Muratore -- Chief Financial Officer
Good morning, everyone. Welcome to Banco Santander Chile's third quarter 2019 results webcast and conference call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Manager of Investor Relations, and our Chief Economist, Claudio Soto. Thank you for attending today's conference call. As you will see in the rest of the presentation, despite ongoing turmoil locally and abroad, the bank continues to obtain positive profitability and high client growth.
Before we get into the results, Claudio, will give us some insight into the macro environment, our expectation for the rest of the year.
Claudio Soto -- Chief Economist
Thank you, Emiliano. Please move forward to slide 3. Activity expanded slower than expected during the second quarter, growing 1.9%. Consumption decelerated while investments speed up, boosted by the advance of large projects. The labor market has shown some signs of recovery with a stronger job creation and a rise in real wages. However, business confidence has remained subdued. Inflation has been low despite of the depreciation of the exchange rate during the year.
In this context, the central bank lowered the monetary policy rate by 50 basis points in September as expected and by 25 basis points in October, reaching 1.75%. During the last days, the country has faced severe social unrest. There are several demands by the population which point toward more economic inclusion and fairer social relationships. Demonstrations have affected the normal functioning of several activities. It is expected that growth figures in the last quarter will be affected. It is still too early to quantify its impact. Asset prices have had a moderate adjustment and the capital risk premium increased only marginally.
In response to this event, President Pinera has announced a social agenda intended to increase basic pensions, expand social health coverage and to reduce and stabilize some public services targets (ph) . It has also announced the introduction of a negative income tax. The package will cost $1.2 billion that will be financed through budget adjustment, a rise in the top marginal income tax from 35% up to 40% and net debt that will account for $600 million. All in all we expect the budget deficit to reach 2.5% of GDP during 2020.
On Monday, the President changed eight members of its cabinet including the Minister of Internal Affairs and the Minister of Finance. The new Minister of Finance, Ignacio Briones, has declared his intention to advance quickly with the tax reform currently in Congress, preserving strong incentive for investment.
Robert Moreno -- Manager of Investor Relations
Thank you, Claudio. I just wanted to highlight that although there has been increased volatility in the local market this past week, the impact in our operations has been minimized thanks to our digital strategy, which has been able to support the branch network and serve our clients over this period. Going forward, the bank will continue to push ahead its strategic plan.
Here on slide 5, we have the different initiatives the Bank has been developing this year. Although, we have been progressing in all of them, we wanted to discuss the progress during the last quarter of those initiatives that are highlighted.
On slide 6, although not officially launched, the soft launch of Superdigital has been quite successful, and we are preparing for the official launch soon. By word of mouth, we already have more than 17,000 downloads and more than 10,000 stable clients.
Just as a reminder, Superdigital is a prepaid card digital platform aimed at the younger generation, immigrants and people, who currently do not have full access to a bank. We believe this product to be very useful and a very high potential -- and has a very high potential to start relationships with new clients; and if they wish to do so, become a direct client of the bank in the future.
Moving on to slide 7. As mentioned in the second quarter, we launched a new Cuenta Life and Life LATAM program. Each plan is targeted to resolve the different needs within this mass segment.
Cuenta Life is geared toward the unbanked population that wants access to online banking and a simple debit account with no credit approval necessary. This is the first approach (technical difficulty) and teaches them responsible banking through a merit system. They can set saving goals and receive merits for contributing and achieving these goals. Once they comply with these minimum requirements, and if they would like credit, they can gain access to a life credit card or life consumer loan through the Life program. As this is their first credit product with us, we aim to improve their financial education by also rewarding them for their good credit behavior.
Finally, those clients that want to have access to the same benefits that our other Santander clients have, we offer the Santander Life LATAM Pass, which along with merits, allows them to accumulate LATAM air miles. These initiatives have been very well received by clients, with monthly new clients accelerating from 3,000 a month to around 15,000 in the past months. In total, we have more than 98,000 Life clients now, and they continue to be our happiest clients, evaluating us with a score -- an NPS score of 9 out of 10 in terms of client satisfaction.
On slide 8, our latest initiative to be launched soon is Klare, the first digital insurance broker in Chile. A recurrent theme among our clients is that when buying insurance, it was very difficult to understand and compare the different options available in the market in a timely fashion. We, therefore, decided to create this open platform, where clients can easily compare between different insurance plans. Although, we have an alliance with Zurich, this platform will be open to other insurance providers as well. We aim to do this in line with the Bank's culture of being simple, personalized and transparent.
We recently received the approval of our local regulator to launch this platform, and we are excited to open this up -- this new way of contracting insurance in Chile. This will be fully operational in 2020.
On Slide 9, we show updated numbers for Santander Consumer, our auto financing unit, which we expect to acquire soon. As of June 2019, the company continues to show good growth with total loans increasing 22% compared to last year, NPLs stable at 2.6%, which is a healthy level in the car loan industry. This is a highly profitable business with gross NIMs over 10%, net income growing 22% year-over-year, and ROEs over 21%. In August, we held the extraordinary shareholders meeting where our shareholders approved the acquisition of 51% of this company for CLP62 billion. Currently, this company is owned by SKBerge and Banco Santander Spain, our parent group. Once this is approved by our local regulator, we will own 51% while Santander Group will own the remaining 49%. We believe we should start consolidating this business over the next few months.
Moving on to Slide 10, as a result of all these initiatives, we have seen an acceleration in account openings, gaining market share compared to our peers. This year we reached over 1 million checking accounts. We currently have 21.6% of all checking accounts in Chile and a 24% market share and net increase in checking accounts this year. With this growth, checking accounts have increased by 10% year-over-year.
On Slide 11, we can see the fruits of the recently launched initiatives, including Life and Superdigital, and the rise in checking accounts, which doubled the level of new account openings. In a normal quarter, we were opening 35,000 to 40,000 new checking and debit card accounts. And in the third quarter, this increased to 86,000.
Due to the growing interest of our investors, on Slide 12, we would like to highlight our progress in responsible banking. The first fundamental change was in the bank's mission. Today, we not only want to be the best bank, but we also want to emphasize that what we do is done responsibly. We have been working on this for years now and we wanted to communicate this commitment to our stakeholders. Part of that responsibility also goes beyond the financial factors and it goes hand in hand with environmental, social, and corporate governance issues. We have been part of the FTSE4Good, since 2016, Index and we are also part of the Dow Jones Sustainability Index for Chile since 2015 and we are also in the Dow Jones Sustainability Index for the MILA market. We are also highly ranked in the MSCI Index with an ESG rating of 8.
We also created a responsible banking sustainability and culture committee locally, where top management is actively involved with the participation of the Chairman of the bank. This committee oversees the responsible business strategy and ensures that our culture -- corporate culture permeates everything we do as a bank.
Slide 13 shows the commitment we also have to our employees. 75% of our employees belong to a union, which with the bank has good relations with. Last year, we signed a new collective bargaining agreement with the main union federation that will last three years. In this collective bargaining agreement, we ensure that our employees have a high standard of working conditions, a goal well above and beyond the minimum required by law.
For example, the minimum wage in the bank is currently CLP760,000 per month, well above the legal minimum wage. This excludes the collection of phone banking employees, which are subject to a separate collective bargaining agreement. Women make up more than 50% of our workforce, but we need to improve gender equality at managerial levels. We have created a gender equality area. And in the quarter, the bank also signed a commitment with the Ministry of Women and Gender Equality to continue advancing in this matter.
On slide 14, we will briefly discuss our most recent results.
Moving on to slide 15, net income attributable to shareholders in the third quarter totaled CLP138 billion. This was a 6.9% increase compared to third quarter '18 and a decrease of 19% compared to the second quarter. As a reminder, in July 2019, the bank recognized a one-time charge of CLP31 billion for a regulatory change in the provisioning model for commercial loans evaluated on a collective basis. Our return on average equity in this quarter, excluding this provision, was 19.5%. These solid results in the quarter reflect the bank's positive evolution of client activities, higher fee income, strong client treasury results, stable asset quality and controlled costs.
Net income attributable to shareholders accumulated as of September was flat year-over-year, with an ROE of 17%, or 18.6% adjusting for the one-time provision charge and well in line with guidance.
Please turn to slide 16. The bank's total deposits increased 10% year-over-year and 3.8% quarter-on-quarter in this quarter. In the third quarter, the central bank lowered the monetary policy rate again by 50 basis points to 2%. This led to lower growth of time deposits, a shift of savings to mutual funds, and a compression of issuance spreads in the local bond market. Therefore, time deposits increased 2.2% quarter-on-quarter compared to a 6.7% Q-on-Q rise in mutual funds and a 3.7% rise in bonds outstanding. The growth of our mortgage loan book also drove our funding strategy of matching those long-term assets with long-term bonds. At the same time, the bank continued to see positive growth of its checking account base and cash management business that led to a strong rise in non-interest-bearing demand deposits of 6.2% quarter-on-quarter and 18.5% year-over-year.
In our corporate banking area, demand deposits were also driven by a large influx of short-term demand deposits. Even adjusting for these, non-interest bearing demand deposits would have grown 12% year-over-year. Our liquidity levels remain healthy, with the LCR ratio at 126% and the NSFR at 108%.
On slide 17, we review loan growth. Total loans increased 6.4% year-over-year and 2.6% quarter-on-quarter. Retail banking loans continued to lead growth in the year, increasing 2.1% quarter-on-quarter and 8.8% year-over-year. Consumer loans increased 8% year-over-year and 1.5% quarter-on-quarter and mortgage loans continued to grow healthy and increased 2.3% quarter-on-quarter and 11% year-over-year.
Long-term interest rates continued to fall and reached a new all-time low in the quarter, driving the increase in demand for new mortgages and the high level of refinancing of existing mortgages.
We continue to expect a loan growth of around 8% for this year and next year, driven by retail lending. Despite low social turmoil in October, the bank's loan book expanded by CLP400 million, mainly in the middle market segment. Loan growth could be somewhat slower in consumer lending due to these events, but we expect some recovery in 2020. In 2020, we also forecast loan growth of around 8% using current GDP forecast.
On slide 17, and before we get into the evolution of margins, we wanted to show you the behavior of short-term rates compared to long-term rates in the third quarter. As you can see in this slide, the yield on the central bank's 10-year note fell steadily during the year and more so during the third quarter. At the same time, the central bank cut the monetary policy rate, but at a slower pace, resulting in a flattening of the yield curve.
The lower short-term rate improved funding costs, but the historically low long-term rates sparked a sharp rise in loan refinancing, especially mortgage loans, pressuring margins in the quarter. However, from September onward, when the central bank began cutting rates more aggressively and long-term rates started to pick up, this pressure on margins began to subside.
With this in mind, we move on to slide 19 and our analysis of net interest margins. The volatility seen in the margin mainly has to do with the volatility we have seen in inflation throughout the year, as around 50% of our loan book is linked to inflation. Compared to previous quarter, inflation was 0.5% compared to 1.2% in the second quarter. NIMs were also pressured as many clients refinanced their mortgages. However, we believe now that the 10-year yield has left the lowest point behind, this effect will start to normalize.
On the other hand, the central bank has been reducing short-term interest rates. So, our liability should continue to reprice and our cost of funds should continue to fall. Remember, the central bank cut last week by another 25 basis points the short-term rate and we expect a further drop later this year. Furthermore, with the focus on initiatives in consumer lending, we should see NIM stabilizing for the rest of this year. And in 2020, roughly around the same level, we'll see at the end of this year, with some upside when we receive the approval of the acquisition of 51% of Santander Consumer.
On slide 20, we can see that the asset quality of our loans continues to remain healthy across our portfolio, with NPLs consistently improving, reaching 2% with a coverage ratio of around 130. This evolution of asset quality is thanks to the strategy we have been following of growing lending in less risky clients such as the high-income clients and selectively growing in the mass segment where, as we mentioned, the focus on financial education and inclusion. In light of the current political events in Chile, we expect a short-term rise in NPLs and the cost of credit due to branch closures and lower working hours, which is hindering, to a certain level, our collection efforts.
Commercial and consumer loan asset quality improved compared to last quarter. Although mortgage loans have had a healthy evolution as well, there was a slight uptick in NPLs due to a seasonal calendar effect as the second quarter only had 89 days, so most new NPLs fell on the first days of July. As you can see on slide 21, our mortgage portfolio continues to be healthy and the rise in NPLs is mainly due to this calendar effect. Here we show the evolution of the 18-month NPL vintages, which is the NPL ratio of mortgage loans after 18 months since being originated. At 18 months, those mortgages taken out during the fourth quarter of 2017 had an NPL of 0.3, well in the recent average.
On slide 22, we present the cost of credit which reached 1.5% in the quarter. If we adjust for the one-time charge previously mentioned, the cost of credit remained flat year-on-year at 1.07%, in line with our guidance for the year. Going forward, in the fourth quarter, we expect some increase in the cost of credit from the recent events in Chile, but hopefully will normalize next year.
On slide 23, we present non-interest income, which showed positive growth in the quarter. In the third quarter of this year, fees from retail banking started to pick up, growing 5% quarter-on-quarter, with credit card fees, checking account, asset management and insurance brokerage rebounding after a sluggish start.
For example, credit card fees increased 21.5% quarter-on-quarter. In the third quarter, almost all of our credit cards have been migrated to the four-part model using interchange fee model, driving this rise in fees.
Results from our treasury continued to perform well in the year, compensating the weaker performance of fees. With the higher volatility in the external markets, our clients' needs have evolved. So, while last year, they were looking for financial advisory and looking to grow their business, this year they have been more focused on treasury products and protecting themselves from exchange rate fluctuations.
Also, non-client income accelerated in the quarter, thanks to good ALM management by the bank. This gain is mainly due to our realized gains of the sale of our available-for-sale investments. The bank's fixed income portfolio is mainly comprised of Chilean sovereign risk and US Treasuries. Therefore, when a reduction in inflation is accompanied by a lower rate environment, the portfolio revalues and partially offsets the negative impact of lower inflation on our margins.
Together, we expect fees and financial and treasury income to grow in double-digits this year. Next year, we expect non-interest income to grow mid, high single-digits. Client growth and cross-selling should remain healthy and driving fees, but lower treasury income could -- treasury income should grow at a lower pace.
On slide 24, we show our distribution network. As at the end of September, we had 381 branches and we reached 50 WorkCafes across the nation.
In the fourth quarter, the bank has experienced some business disruption due to social unrest that has resulted in 50 branches with different degrees of damage. The majority of this damage is covered by insurance, but there are some minor additional expenses necessary in security and cleanup that will be reflected in the fourth quarter. However, our digital channels have been able to serve our clients efficiently during these times. We will continue to push forward the restructuring of our branch network to make it more digital.
On slide 25, we present our operating expenses. The 4.1% increase in costs in the quarter was mainly due to the rise in costs related to investments in technology and branch digitalization, leading to the increase in productivity showed in the previous slide. Operating expenses to total assets reached 1.8% and efficiency ratio was 39.3% in the quarter. We continue to spend on marketing, communications, cybersecurity and technology developments, as well as improvements to our distribution network.
Slide 26 shows that, at September 2019, we reached a core capital ratio of 10.2, stable compared to the same date as last year. The solid capital ratios at the end of the quarter give the bank room to grow and continue implementing our investment plan. We also expect to have a dividend payout similar to last year, around 60%, and that would give us a dividend yield around 4% currently.
Please turn to slide 27 now. As many of you already know, a new banking law was approved in January. With this, the SBIF merged with the CMF. The merger initiated the start of an 18-month period in which our regulator, the CMF, will work with the central bank to create regulations for the implementation of Basel III in Chile. The CMF already published, for discussion, the definition of systemic banks and additional capital requirements needed. This level was calculated by -- according to our factors to reach a weighted average of systemic importance. According to our initial calculations, we should fall in level 2, meaning a systemic charge of 1.25 to 1.75.
The regulator also published for discussion the determination of the operational risk coefficient, which is very much in line with the recommendations made by the Basel committee in Basel IV. We estimate operational risk should add on around 7% to our risk-weighted assets, very much in line with our original estimate. The next guideline to be published shortly should be credit risk weightings, and this will be an important milestone for the implementation of Basel III in Chile. We continue to believe that the transition to Basel III will be neutral to positive for our bank in terms of core capital ratio.
We will now move on for our outlook for what remains of the year. After the events of recent weeks in Chile, we should see some short-term impacts on the cost of credit and some minor increases in operating expenses, but a recurring ROE of 18% is still attainable for the year. For 2020, we believe it is still too early to determine the impacts. We do not believe current events should be underestimated, but long-term impact should not be overestimated at the moment either. For this reason, we will continue with our investment plans, focusing on technology and new initiatives. Next year, our acquiring business will be launched as well as Klare, our new open platform for brokering insurance. We still expect loan growth of around 8%, including the incorporation of the highly profitable auto lending business we are purchasing.
With inflation relatively stable and lower interest rates, NIM should be stable or slightly higher at 4.1%, 4.2% going forward. Our improving client service and digital channels has enhanced our ability to capture new clients and cross-sell existing ones, and this continues to drive non-interest income. And so, now we expect asset quality to remain stable in the medium term with the cost of credit around 1%, 1.1% using current GDP forecast.
The efficiency ratio should also remain around 40%, even including our ambitious investment plan and our effective tax rate will remain on average around 22%. In the next earnings call at the end of January, we should give some more clear guidance regarding 2020. At this time, we will gladly answer any questions you may have.
Questions and Answers:
Operator
(Operator Instructions). Our first question comes from Jorg Friedemann with Citibank.
Jorg Friedemann -- Citibank -- Analyst
Thank you for the opportunity to make questions. So, first, with regards to the revision in labor law, that kind of could limit the number of working hours per week, I think, to 40 hours. Could you give us some color about the expected impacts for the banking system and for Santander, in particular?
And my second question, just to clarify, you provided very good charts in the presentation with regards to the evolution of mortgage asset quality. And it seems that it's just back to average. But taking into consideration the current refinancing that you have seen in this portfolio, would it be reasonable to expect that asset quality could even improve further? Because I understand a lot of our clients are renegotiating those contracts at even lower yields. Thank you.
Emiliano Muratore -- Chief Financial Officer
Thanks, Jorg, for your question. This is Emiliano. Regarding the labor law, Robert can go into more details about the impact of the proposed law. Although considering the current events, that kind of law -- it is still in Congress, but I think that it's going to be maybe not so in the front line of the things that the government will be dealing with, considering all the different fronts that they have to deal. But I mean, Robert can comment a bit about the --
Robert Moreno -- Manager of Investor Relations
Yeah. So remember that under our current -- the main collective bargaining agreement we have, Santander Chile already has established a 40-hour work week. That's a -- and then -- there's different laws being proposed, some going down to 35 hours a week without lunch, 40 with lunch, others with 41 including lunch. So, obviously, I think today the work week in Chile is around 45 hours.
Emiliano Muratore -- Chief Financial Officer
That's --
Robert Moreno -- Manager of Investor Relations
The law today, right? Yeah. And they were at 40. So, I think, for us, it shouldn't be a major impact. Also, as I said in the presentation now, we already have a relatively high minimum wage standard in the bank. So, in that sense, we're rather tranquil that there shouldn't be any major impact on our cost base currently. Okay?
Emiliano Muratore -- Chief Financial Officer
And about the mortgage asset quality impact because of this reduction process, the macro number that we estimated is that this whole process is putting around like $300 million yearly on the hands of mortgage debtors. So, in average, that -- it's a reduction around -- 7% to 10% reduction in the monthly payment, although that's an average. Some people are getting even higher reduction. So, yes, I mean, from the asset quality point of view, that's definitely a tailwind because the monthly payment is going down. And so, all the things -- all the other things equal, this is like good news for asset quality in the mortgage portfolio.
Jorg Friedemann -- Citibank -- Analyst
Perfect. Thank you very much.
Operator
Thank you. Our next question comes from Ernesto Gabilondo with Bank of America.
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Hi. Good morning, Emiliano and Robert, and thanks for taking my call. I have three questions. First one is on your macro outlook. I think you have already talked about the impacts that happened in Santiago and in other cities. But I think the impact that we saw in the (inaudible) in some of your branches and the low activity in most of the cities, and then we saw that the government was heeding to the different demands of the people and probably the structural reforms that it continues to have would no longer be the same for next year. So, anything -- what do you see the macro outlook for next year will be very appreciated.
And then, my second question is in terms of fees. You mentioned the potential impact for cost of risk and expenses due to the impact in 15 of your branches, but how do you see the impact in fees for next quarter, given that Santiago and other cities in the region experience low activity in the last two weeks, especially in everything related for (inaudible) and POS transactions in retailers and shopping malls.
And then, my last question is on NIMs. So, for this quarter, we have seen all of the interest rate cuts happen already this year, that has been contributing to lower funding costs. So, given the next year the effect is likely to be behind, and you mentioned now that you expect stable NIMs for next year. So, just wanted to know your point of view that even in -- that you will have a more tough base for next year that you expect NIMs to remain stable. Thank you.
Emiliano Muratore -- Chief Financial Officer
Okay. On the macro outlook, there is still too little information to have a broader assessment on the overall impact of the current situation. Definitely, we will probably revise downward our estimate for growth this year. For next year, the domestic events points to also lower growth. But on the other hand, we have seen better figures in the world economy in general. The release of GDP in the US was better than expected. And up to now, an important drag for the Chilean economy has been the slowdown in the global economy due to the trade war.
Therefore, there are a few forces pointing in two different directions, but definitely the domestic situation will point toward a lower activity, but the assessment -- probably we will do a better assessment in a couple of weeks.
Robert Moreno -- Manager of Investor Relations
Okay. And then fees, yeah, so in the presentation, we talked, there will be some impact on the cost of credit, a little bit in expenses. Now, I would expect some fees to be slightly lower than the third quarter. The good news is that people are continuing to use the digital channels, buying online and all this is helping. But, yeah, so the fees were around CLP72 billion in the third quarter. They should be lower, still hard to see. It depends how the Christmas season -- the Christmas season is really strong, obviously, in buying and have a feeling. So, yeah, I wouldn't expect these to surpass the third quarter, but we still expect them to be higher than how they were last year when they were around in the fourth quarter like CLP67 billion. So, somewhere around between -- maybe around CLP68 billion, CLP70 billion, I would say, is a good guess at this time. Okay?
Emiliano Muratore -- Chief Financial Officer
Yes. So, remember that under our current -- the main collective bargaining agreement we have, Santander Chile already has established a 40-hour work week. There's different laws being proposed, some going down to 35 hours a week without lunch, 40 with lunch, others with 41 including lunch. So, obviously, I think today the work week in Chile is around 45 hours.
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Very helpful. Thank you very much.
Emiliano Muratore -- Chief Financial Officer
Okay.
Operator
Thank you. Our next question comes from Gabriel Noboa (ph) with Citi.
Unidentified Participant
Hi, everyone and thank you for the opportunity of making another question here on our side. Could you just maybe talk about the competitive environment, given that the interest rates have been coming down and you have even been guiding for maybe further interest rates cuts. So, I just wanted to see if you believe that other banks are being rational in the competition. And as for my second question, it's on your capital. I note that we are still waiting for the RWA weightings from the regulator. But if we expect these to actually decrease over the coming year, could we maybe see more upside for your payout ratio in 2020 and onward as well? Thank you.
Emiliano Muratore -- Chief Financial Officer
Thanks, Gabriel. On the competitive environment, we haven't seen any significant change. I mean, it's a very competitive market, and so far the competition has stayed quite stable. As I said before, maybe Basel III would be a game changer in that front, but it's still early to be seen. And the rest of the competitive environment, I would assess it as normal and stable comparing to the recent past. And going to capital, yes, I mean, we still expect to have the Basel III reform being neutral to positive for us. And considering that we don't expect to change our CET1 ratio target under the new law, that should be positive for payout, although not for 2020 because we pay dividend in April and (inaudible) to know the final version of the law or the regulation by that date for 2021. Yes, it has the potential to be a positive news on payout.
Robert Moreno -- Manager of Investor Relations
By December of 2020, we'll have our risk weighted assets under Basel III. Okay? And as we said in the presentation, very soon, I don't know if the current events might make everything get behind, but the regulators -- so, the next thing they are going to publish for commentary is the risk weighting of credit of loans, and that's really the core of the whole model.
Unidentified Participant
Perfectly clear. Thank you.
Operator
Thank you. Our next question comes from Neha Agarwala with HSBC.
Neha Agarwala -- HSBC -- Analyst
Hi. Thank you for taking my question. My first question is on the Life product. You mentioned that you have more than 94,000 clients. But when you implemented the Life product, how have the results of this segment been versus your expectations in terms of margins, in terms of asset quality and profitability? And my second question is, of the investment plan of $380 million, how much of that investment is front-loaded, as in how much of that should we expect as already done in 2019? And what portion of that would be spread over to in '20 and '21, just to get an idea of how the costs will likely evolve? Thank you so much.
Robert Moreno -- Manager of Investor Relations
Okay. So Life is going perfectly as planned, I would say, and recently even better, especially regarding the client acquisitions, I think with the new products and the new attributes we added on to Life, seeing a lot of demand. It's a very good product, especially the -- a lot of it is good, but Cuenta Life is also relatively cheap. It's around less than $5 a month.
So, in terms of margins, profitability, asset quality has gone as planned and even slightly better. Life already makes money. We have around CLP60 billion in loans, I believe. CLP60 billion in loans. CLP40 billion? CLP40 billion, sorry. And as I said, Life is growing very gradually. It's all organic. The way we wanted it. We wanted to start off slowly, start speeding things up, adding on new attributes, and that is what is happening, it's growing at a good rate and it's meeting all of our profitability, asset quality and margin targets. So we think this is a very good instrument to begin to go more into the mass market, but responsibly. And regarding the costs -- yeah, sorry, go ahead.
Neha Agarwala -- HSBC -- Analyst
Now, on the Life, do you see your competitors adopting a similar strategy in the mass market and how is the competitive landscape here? Thank you.
Robert Moreno -- Manager of Investor Relations
Well, until now, I think Life has been quite unique, adding on like a way to open an account easily in the bank digitally and this whole program of getting merits, merits If you pay on time, merits, if you save, the more merits you get, the lower the interest rate on your loan products becomes. And until now has been very unique. And the current clients and the new clients, when you compare their options, their other options many times is to go to the retailer or go to the state-owned bank debit card system. This is much cheaper and much better and much more favorable, I think, in all sense. That's why Santander Life clients, they have an NPS score, net promoter score, of 90% which is the highest in the bank. Regarding the costs, basically, the investment project is CLP130 billion year. So, the CLP380 billion, it's roughly CLP130 billion per year, and that's the case for next year and the case for this year.
Neha Agarwala -- HSBC -- Analyst
Perfect, very clear. Thank you so much, Emiliano and Robert.
Operator
(Operator Instructions) Our next question comes from Rui Fernandes with JP Morgan.
Rui Fernandes -- JP Morgan -- Analyst
Thank you, gentlemen. Thank you, Emiliano and Robert. I had a question on your coverage ratio. We saw some decrease. And for us, that was something that caught the attention because you had the one-time provision. So, looking through your (inaudible) was a bit higher. But the point is, how should we see the coverage for the bank because you are growing more on consumer loans on like higher risk? Should we see the coverage ratio moving higher? Like, do you have any number that you are targeting for that? That's the first one.
And my second question is regarding loan origination post the protest. If you can share any view how the protest affected new loans origination. And if you think the 8% is feasible for this year because you need to grow about more than 2% quarter-over-quarter and it's going to be very, very challenging in this kind of environment. I think maybe business confidence may be under pressure. So, if you can share how things are behaving now and if you believe the 8% is doable for this year. Thank you.
Robert Moreno -- Manager of Investor Relations
Okay. So, effectively, the coverage ratio -- that was due mainly due to the -- what we talked about in mortgage. So, mortgage -- remember, in Chile, NPLs by definition is 90 days or more, OK? And it's strictly days counting -- how many days there are. And you have to have faith in what I'm saying, that June, the second quarter, has 89 days.
So a lot of like the people who are 90 days overdue, they didn't fall over until the beginning of July. So, there was kind of like an unrealistic fall in NPLs in the second quarter and we call this here internally the calendar effect. September basically back -- went back to normal. Okay? That's why we kind of show -- especially if you look at slide 21 on the webcast, you can go back and look at it later, we show the vintages.
So we show that there hasn't been a deterioration of vintages, meaning this is truly a calendar effect that there is a deterioration. So, all the NPL formation was basically the fact that they didn't fall in the second quarter, and the 90 days NPL was in the beginning of July and they went into NPLs in the third quarter. So we don't -- so, said that, I would say the third quarter is a more normalized level. We don't target a coverage ratio.
Remember, we have expected loss models here in Chile. They're not IFRS 9. The expected loss model is kind of driven by the regulator's policies. So, basically, our coverage ratio is a reflection of what our expected loss is, OK? And since this calendar effect, they did not harm our expected loss, our coverage fell basically. But the stock of provisions for loan losses in the balance sheet over total loans is a true reflection of what our expected loss is. So, the coverage ratio is kind of an output of that. Okay?
So, going forward, we expect the expected loan loss ratio maybe to rise a bit in the fourth quarter basically because, since some branches are closed -- remember, when someone is charged off or they have to go to the branch or they had to go to the branch to pay their loans, what we we're doing is that, today, we're now permitting people who have been charged off to have access still to the webpage to be able to pay the loan online and so forth. So, basically, through improving the collection efforts online, we're trying to minimize the impact that people who had to go to the branch to pay their past due or charged off operations. Okay? So, I think the cost of credit will rise a bit to 1.1%, 1.2% in the fourth quarter. And if everything starts to normalize, then we should see the cost of credit and asset quality stabilize next year.
Emiliano Muratore -- Chief Financial Officer
And regarding the loans origination, basically, the last week, branches were mainly closed most of the day, and so the origination was very low. In our retail business, basically, that means losing like one week of sales. This week has been a bit better, but it's still much slower than normal. So, in order to assess how that would loan growth over the year, we need to know how things will evolve. And we don't know yet how it's going to -- or when this is going to normalize. We are still, as I said, a bit more normal than last week, but it's still a way from, let's say, the real normal. So, I think that's kind of negative for loan growth, although so far not so relevant to, let's say, get the 8% out of the picture. But it depends on how things evolve from now. Tomorrow, on Friday, it's holiday here in Chile. So, let's see how our Monday, the beginning of November, things start. But so far, we're still at 8% on the table, but it depends on how things evolve.
Robert Moreno -- Manager of Investor Relations
Yes. And in October, we grew like $400 million, the equivalent in pesos. So, it wasn't a bad month overall. Obviously, much more geared to the middle market. Okay? A little slower in consumer mortgage, but there was decent loan growth in October. And the other thing is we're still waiting on the final approval of the acquisition of Santander Consumer auto financing and that would help, obviously, to reach the 8%. If not this year, it will help to boost loan growth next year.
Rui Fernandes -- JP Morgan -- Analyst
Okay. So, just a clarification, so the Consumer unit, it's part of the 8%?
Robert Moreno -- Manager of Investor Relations
Yes, I would say. And it would add on 1% to 1.5% to loan growth. We would like to have reached 10%, but 10%, I think, is out of the question. So, with consumer, we might -- we'll able to reach the 8% for the full year, maybe a little more, but it depends on the approval and how fast this normalizes.
Rui Fernandes -- JP Morgan -- Analyst
Super clear. Many thanks for the answers.
Operator
Speakers, I'm showing no further questions in the queue at this time. I'd like to turn the call back over to management for any closing remarks.
Emiliano Muratore -- Chief Financial Officer
Thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Duration: 50 minutes
Call participants:
Emiliano Muratore -- Chief Financial Officer
Claudio Soto -- Chief Economist
Robert Moreno -- Manager of Investor Relations
Jorg Friedemann -- Citibank -- Analyst
Ernesto Gabilondo -- Bank of America Merrill Lynch -- Analyst
Unidentified Participant
Neha Agarwala -- HSBC -- Analyst
Rui Fernandes -- JP Morgan -- Analyst
