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Banco Santander-Chile (BSAC -0.06%)
Q3Â 2020 Earnings Call
Oct 30, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Yeah. Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Banco Santander-Chile Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker for today Emiliano Muratore. You may begin.
Emiliano Muratore -- Chief Financial Officer
Good morning, everyone. Welcome to Banco Santander Chile's third quarter 2020 results what got a conference call. This is Emiliano Muratore, CFO, and I'm joined today by Robert Moreno, Managing Director of Investor Relations; and our Chief Economist, Claudio Soto. Thank you for attending today's conference call. We hope you all continue to stay safe and healthy during the quarter century has began a gradual reopening, which so far has been working well to control the health situation. We have a lot to discuss today with various important messages. Now we'll start with an update on the economy and the macro scenario. Then we will go into the results of the bank during the quarter. And finally we will explain how we continue to progress in our digital strategy and other initiatives.
Now I will hand the call over to Claudio. Thank you. Please turn to slide four. In the third quarter, the pandemic has been receding to allowing a gradual easing of lockdowns. reopening study involves going through various phases or stages of the final the commoner level considering not only local indicators, but also regional and national information. Currently, less than 10% of the population is still in stage one with full lockdown. As you can see on slide five, the reopening process has a lot of mobility to resume, helping the economy to kick start once again. households have received substantial liquidity thanks to the pension fund withdrawal of about 16 billion US dollar equivalent to 6% of GDP and the government dustwrapper programs. This term injection of resources will continue to boost consumption until the end of the year. And select six we show that the economy began its recovery slowly Do you know last we saw a much stronger rebound thanks to the increasing mobility and the liquidity shock September's data. So having an even faster is an activity. Retail sales are running above the current bias levels. This is confidence attend is highest standing since last October. With the overall perception of the country cetacean within optimistic territory expert view table by a high copper price and inputs contracted less than the previous month. Employment has also began to rise. As long as the pandemic remains subdued, the recovery should continue throughout the rest of the year. On slide seven, the economy should ascend on slide seven, the economy should contract between five and 6% this year and recovered during 2021. inflation will remain contained, as large gaps in the economy still restrained price increases. Therefore, we believe it will continue below the 2% target during 2021. I converge toward this level by 2022. With this, the central bank will maintain the interest rate rate low for several quarters. Finally, as seen on slide eight, because the tuition reform process has officially begun the sunday october 25. Because the tuition referendum Medicare, the bill was a strong support for the from the population for a new constitution constitution. The approval option won by a wide margin, as well as the option for a constitutional convention as the body in charge of writing the new text. The election of the Constitutional Convention members will take place on May 11 2021. They will have up to a year to propose a draft that will be voted for in an extra referendum by mid 2022.
Robert Moreno -- Managing Director of Investor Relations
Thank you Claudio. We will now move on to explain our strong balance sheet and the results in the quarter which started to show positive trends as he caught the lock downs where he is. If we move on to slide 10. net income in the third quarter increased 23.9% quarter on quarter totaling 100 and 5 billion pencils. It is important to point out that third quarter results include Additional voluntary provisions in the amount of 30 billion recognized in order to increase coverage ratios, considering the uncertainty surrounding the potential impacts on credit quality of the COVID crisis. In the quarter, the bank also recognized 34 billion pencils in regulatory provisions set aside for rapid loans due to a regulatory change in these loans expected loss models. Since August, we have seen our results recover in line with the easing of lockdowns and the graph on the left on this page, we can see the monthly evolution of operating income netta provisions during the year with August and September showing positive trends. This has contributed to a stronger quarterly return on equity of 11.5 compared to 9.5% in the second quarter. On slide 11, let us begin with the analysis of the evolution of net interest income as of September 2020, our nine month basis has shown strong growth of 10.5%. Our names that reach 3.7%, and three quarter and a third quarter are mainly affected by the focus on growth in low yielding in low yielding but less risky assets and the zero percent us inflation rate in the quarter. The good news is that inflation is expected to pick up in coming quarters, which should boost names back to the 4% level.
In slide 12, we show that despite the adverse scenario for names, the successful but management of the balance sheet has led to strong Nii growth compared to our main peers and the rest of the banking system as we have successfully managed our cost of funds. This improvement in the funding mix can be observed on slide 30. Our non interest bearing demand deposits have grown 47% year on year and an impressive 12% quarter on quarter. The bank recorded for the first time a higher balance of non interest bearing demand deposits than time deposits in the quarter. overall market share and demand deposits reached 21.6% in August, is increasing significantly versus last year. Overall the solid management of our funding mix, focusing on our most cost efficient funding products has been vital and supporting our net interesting. On slide 14, we can see that the high demand of the demand deposits was common to various client segments due to growth of retail checking accounts and continued strength in the bank's transactional banking services for companies. Moreover, in the quarter the net demand deposit growth was also driven by the effect of the withdrawal from pension funds, increasing individual account balances in the quarter and Civ our corporate banking area was an important pair of these funds on behalf of the Chilean pension fund. The average cost of our nominal pistol time deposits also continued to descend, as can be viewed in the graph on the left with our time deposits now paying around 0.5% in line with the monetary policy rate and below that of our main competitors.
Slide 15 we review long growth, long growth decelerated in third quarter as demand for fogata COVID lines dried up and due to less demand for working capital lines on behalf of corporate in terms of palapa loans. As at the end of the quarter, the bank had disbursed approximately 1.9 trillion pesos of these loans, which represented around 10% of our commercial loan book. The man for forgot the loan started strong in May and has been diminishing each month thereafter. lending to individuals continue to fall with consumer lending contracting as our clients remain restrictive in their consumption behaviors. At the same time, the payment of behavioral reclined especially in consumer lending has remained very healthy, leading to positive asset quality ratios as we can observe in slide 16. In this slide, we show the breakdown of asset quality by loan portfolio. So far, the NPL and impair loan ratio has shown good trends due in part to the payment holidays. It is important to point out though, that in that in consumer loans as of August, most of the reprogram loans came due, and therefore the NPL and impaired loan ratio reflect very good payment behavior, following the end of these payment holidays impair loan ratio for them. remained steady at 5.6%. The NPL ratio at 1.2%. And in the coverage ratio the coverage ratio, including voluntary additional provisions reached 552%. For consumer loan book, our strategy of focusing consumer loan growth among high income earners, and the injection of emergency liquidity measures to household has helped to maintain good asset quality and consumer loans.
The coverage ratio for the whole loan book reach 199%. The MPL and impaired loan ratio remained steady quarter on quarter at 5.3% and 1.8% respectively. coverage ratio have risen across all portfolios, as we created voluntary provisions to make up for any shortfalls generated by the payment holidays regarding the evolution of payment holidays, on slide 17, oh, the evolution of these through September, which until now has been very encouraging. As we can see from this diagram, 29% of loans with payment holiday expired by the end of September, and 98% have these have resumed payments in a normal fashion. This includes almost all reprogrammed consumer loans. On slide 18, we present the calendar maturities for reprogram loans in the coming months. The majority of Okapi loans begin to come due in December, and the average state collateral guarantee covers 78% of these loans. In October, an important amount of reprogram mortgage loans resumed payments. Also with reassuring friends, as of October 28 97% 90, sorry, 98% of these loans were paying normally, when comparing the early nonperformance of these clients up in October to their same behavior before the pandemic payment behavior has actually been much better. In March, for example, the same client had an early nonperformance ratio of 4% compared to 2%. Now, these are very good signs and reflect the quality of the retail loan portfolio. On page 19, we also demonstrate how this good payment behavior is due to our prudent risk policies in recent years. In this slide, we show the evolution of the growth of impaired loans and charge off in the last 12 months, a good indicator of the pipeline volume of poor quality loans in absolute terms, compared to our main competitors, we show the lowest growth rate in this indicator and in since 2015. We also present this as a percentage of loans, and we have the lowest overall rate at 1.2%.
This points to positive future trends in the cost of risk. On slide 20, we show how these good asset quality indicators lead to a lower cost of credit and three q which was 1.5%. Remember, this includes the 30 billion in additional provisions, and 34 billion for for rapid loans. With this our year today, cost of credit reached one point 65%. Moving on to slide 21. We believe that with a positive evolution of reprogram loans coming due coming to the cost of credit is expected to continue descending and fourth quarter. In fact, preliminary preliminary figures are pointing toward the cost of risk around 1%. However, our board considering the ongoing risk of new ways of COVID infection as instructed management to continue recognizing additional provisions in fourth quarter, including these impacts, the cost of risk should still be inferior to 1.3% in the fourth quarter, and the coverage ratio should continue to rise. In slide 22, we take a quick look at non interesting contracts. After a strong second quarter financial transaction income decreased as a result of lower realized gains from our available for sale portfolio. The bank's fixed in fixed income liquidity portfolio only includes instruments that are high quality liquid assets, such as Chilean sovereign risk and US Treasury. This lower and non client Treasury income was compensated by solid demand from client Treasury products. B is also fell in the quarter by 1%. Still affected by lockdowns and lower economic Make activity, Insurance Brokerage and checking account fees were also hit by the new cyber fraud in law. As we will soon see, the strike acceleration and account opening should help to compensate this effect in coming quarters.
On a positive note, card fees from cards, credit card and debit cards increased 47% to two and 26% year over year, due to higher online purchases with our cards, especially new Santander light clients. The Economics of our cards has also improved since we move to the interchange fee model. On slide 23, we show the evolution of efficiency and expenses. Our efficiency ratio was 41.5% in the quarter and 40.3. Year today, operational expenses remained under control, increasing only 3.1% year on year and decreasing 1.1 quarter on quarter. The control cost growth includes the incorporation of Santander consumer finance last year, as well as technological costs associated with our investment plan and digital initiatives. regarding our capital ratio on slide 24, the bank finished the quarter with with very strong ratios, our core capital ratio reached 10.7% compared to 10% at the end of June, in August, the CMF published a new treatment for crappy loans, and the risk weighting was lowered from 100% to 10%. Our total viis ratio as can be seen on slide 25, reached 15.1%, the highest ratio in the last decade due to solid Capital Management during the year. On a year on year basis, the bank's risk weighted assets have only increased 3.2% compared to a 22% increase in regulatory capital. As we show on slide 26. With these capital ratios, the board has proposed to pay the remaining of the remaining 30% of 2019 shareholders net income that was set aside in retained earnings in April this year, for a total payout of 2019 earnings of 60%. If approved by shareholders, this corresponds to a dividend payment of 0.8. pestles per share, and is equipped equivalent to a dividend yield of 3%. Considering the share price on the data announced, this was announced, this will be paid at the end of November.
In the final portion of this presentation starting on slide 27, we would like to update everyone on our most significant strategic and business initiatives. On slide 28, we start out with some good news from the ESG front from video, which completed its annual ESG rating of the bank with a 94% reporting rate compared to 68%. For the sector average, we scored high in various categories, including the environment due to the decrease in our co2 emissions, labor related indicators to our high percentage of woman in the workforce and human rights indicators as well as strong corporate government policy covering corporate governance policies. summarized in slide 2129, sorry, we continue to advance in our different strategic initiatives, mainly focused on our our 300 and 80 million investment plan. Show on slide 30. We are also beginning a process of reopening the bank, as locked out as lockdowns have eased 25% of our central office employees have begun to go back to the office under strict hygiene protocols. 90% of our branches are now open, including the worker face. We even inaugurated a new work affair in the quarter. These branches now total 54.
The real winner in 2020 has been our digital channels. We continue to increase our market share and digital clients as measured by the CMF up to 35%. up three percentage points in the last 12 months. Even the strong growth of our digital offer as well as a lockdown due to the pandemic. Currently our clients are performing over 10 times more transactions digitally than through branches. Our digital client base continues to grow at a strong pace, increasing 11% quarter on quarter. The main reason for this strong rise in digital clients and transactions as we illustrate on slide 31 is Santander life and super digital, super digital is has already been Have 100,000 new clients and in the third quarter alone attracted 92,000 new clients, and is onyx well as well on its way to release 150,000 by your own. And their life has been the real game changer in the Chilean financial system this year. In the third quarter, the amount of new live clients was approximately 230,000 compared to 105,000 in the second quarter. At the current growth rate, life is well on its way to reach 500,000 clients by year end, which more than 75% have entered the bank or a 100% Digital onboarding process, mainly smartphones. As a result, and as we show on slide 32. Our market share and checking account opening this year has been stellar.
According to the latest debt data we have available which is as which is as of July fantastic Sheila has opened on a net basis. This is the difference between accounts open and close and 42,000 accounts checking accounts on a net basis compared to a net closure of 10,000 accounts in the rest of the system. It is important to point out that this figure doesn't even include the large jump and checking account openings in August and September through Santander life. As a reminder in August alone, and in September Santander life open 60,000 to 70,000 new clients. This strong preference for our bank is also visible and the latest NPS scores as of October are NPS score reach 48, placing us in sole possession of the top one position for the first time with strong marks in image service quality and product quality. Finally, as we show on the next slide, our success in digital banking initiatives this year has been solid standing that we'll be holding on November 19. Our first Santander digital talk hosted by our president Claudio Melandri and our CEO Miguel Mata. This two hour event will include a visually eye catching presentation on our digital strategy, as well as a live Q&A session with cloud Yogi when we get please don't miss this event. The official invite invite will be emailed to you soon. In summary and slide 34 we believe third quarter was an inflection point as lockdowns, ease as lockdowns, ease economic activity began to slowly resume. low growth has not reactivated yet, but the man for COVID-19 rope reprogramming has decelerated. As the quality of the reprogram loans coming due has been better than expected so far.
The cost of credit even with the recognition of further additional provisions should continue to decline this year. demand deposit growth has been stellar. Our digital channels have driven record growth levels of account opening and have led us the number one spot in NPS we also finished the quarter with solid cost capital ratio and the board has proposed distributing another dividend. Our results have slowly begin to improve. We believe names have bottomed out and should rise back to more normal levels in the fourth quarter. You should also gradually rebound driven by card and checking account fees. Finally costs also remain under control. This means the final quarter is looking good. The final quarter of this year is looking good. With an expected ROI of 16 to 17%. There is still uncertainty regarding the recovery of the economy. Given the possible second waves of the pandemic. We are on track to see profitability, it continues to recover in 2021.
At this time, we gladly answer any questions you may have.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Ernesto Gabilondo with Bank of America. Your line is open. Hi, Good morning Emiliano, Robert, Claudio.Tthanks for the opportunity and for the presentation. My first question is from the political and economic outlook. I will appreciate your thoughts on the potential second round of pension fund withdrawals and the uncertainty on the constitutional process. Give it that next April there will be 100% new members in this point that you see these will be back Are you you see a concentration of a political party. Also, given that the government has been seeing a lot of demand, and that the government has put a lot of effort to do fiscal and monetary measures, we're seeing a higher debt to GDP. So you expect a new tax reform next year, and how you think all these will influence on presidential elections of next year? I know a lot of questions on the macro side, but I would like to know your thoughts. And then my second question is on your provision charges, and positively, I know that you have been creating preventive provisions, and because the race has average 1.6%. However, when compared to the 2009 crisis, I think it got the risk used to be at 2.5% and the economic decline around 1.5%. So now, the economy is expected to decline around five 6% and you have a lower cost of risk. So I would like to know, why is the difference. And on the other hand, we have seen that 29% of your default clients receive payment in September and at only 2% is delayed. So So again, not just want to know, if this is the reason why you are having a lower cost of risk, or what should we expect going forward? And considering that I think you will have cliente fuming payments in October and November. Thank you.
Emiliano Muratore -- Chief Financial Officer
Thank you Ernesto for your questions. Claudio are you around to go to the first one?
Claudio Soto -- Chief Economist
Okay, so that there are many questions, many, many, many things there. So let me begin with a with a 10%, with all is not clear yet what will happen with a second, the preposition for a second a withdrawal, it does a first stage in the house of Deputies, that they need to be approved. And they have the full house now. Remember that this is a constitutional reform, therefore you need high columns to be approved. It's not clear yet, what will happen with the deputies of the chicken farmers coalition is not clear yet. What will the government do? They have announced some, there are some hints that they could go to the Constitutional Court to avoid this project to become a law. On the other hand, the deputies from the official coalition are asking new measures on the government side in order in order to counteract this, this proposal, so there is still some uncertainty there, there is certainly a chance that this proposal will go again. And that would mean an extra boost of liquidity to households, we already saw that the first withdrawal implied a huge liquidity shock that have the economy to recovered in August and September and probably still during October, saying in case that you have a second withdrawal, you will have a boost on on consumption.
But it will create, of course, more tension on the on the reform of the pension system that is currently being discussed in Congress. Now regarding because in a process the next stage is of course the election of the constitutional members, the members of the constitutional convention that will take place in April, yesterday it was bolted on law that will include free gluten free, including indigenous people within the convention. So they're a 155 members to be elected, plus 23 members from indigenous communities. The election system for the members of the cars. The members of the Constitutional Convention is the same system that we have for electing deputies, where parties can present a list or a couple of parties may create a pact. So I joined the list. The system works with the so called don't metal where you tend to penalize a division within within coalition. So if if a coalition goes divided in several lists, he gets a penalty. Therefore, we expect the composition of the Constitution in terms of ideological position position. If you want to be Not too different to what we have today in Congress. So the center should be represented by a third, the more left to a certain the more right wing ideology to be represented by at least a third. And you have to bear in mind that there is a one third precondition for any norm to be included in the new constitution. Therefore, there would be Coalition's between the center and the left or the center on the right, in order to advance with certain purposes proposition, of course, the process involves uncertainty, we will be going through a period of at least three years of uncertainty before electing the members and then before having the exit referendum.
But in the end, it could be a positive process in the sense that we reach a common agreement on the basic rule of the game for the future. And that could be there is a chance to have a positive outcome there, that will be beneficial for for the economy, as well. So by the end of the year, we'll have a presidential election. polls suggest today that the front running candidate is center right a major or say one one, a kimono in Santiago Horton Levine, he's one of the front runners. So probably he will be one of the candidates, and today he has a highest chance to be to be elected. And that, of course, the campaign will be a will have a focus on the content of the constitution that will be part of the of the political campaigns. This is more or less the outlook that we see in political terms. There are several challenges ahead. But at least the the process, all the violence that we saw last year, has been conducted through an institutional process. And we see now more agreement in term of continuing with this institutional process to produce a changes. Your last question about taxes. Mr. Jonas has just so on a commission of several economists from different parties and political views from the left to the right to the right, in order to propose amendment to the current tax code. The focus will be more on illusion illusion clauses to close certain loopholes that we have currently in the system. The Commission will have to lie to propose a draft for amendment is very difficult to see in this government going again to Congress to produce a reform, they will have very little time in office before after they received the proposal. So probably probably this will be material for for the next government to toggle loopholes in the tax code as a first stage in order to increase a revenues.
Emiliano Muratore -- Chief Financial Officer
Thank you. Before moving into your second question of matter of the Robert will address it and then I would like to dimension regarding the potential second withdrawal from pension funds that living outside the long term discussion and effects on on on pensions that definitely that's a big issue. But leaving aside that for a while, the short term effects definitely are showing higher liquidity for households. As you can see on the slide, on slide five on the webcast, almost 400,000 people in this third quarter left the negative credit bureau in Chile meaning that definitely part of that money went to pay back that you can also see that in that in quality for for for our for our balance sheet or for the rest of the system, and so on the second effect is consumption going up and that also carries some pressure on inflation and prices being not so low as we had in the first part of the year. So those short term effects of the potential withdrawal I mean, higher liquidity lower leverage for families, higher consumption and prices not so low and not may not be the effects for for banks in the short run at the cost of definitely the pension effect that the decision could take. Who could have on the long run?
Robert Moreno -- Managing Director of Investor Relations
Yeah, so taking off from that Back in 2009, the big difference is that the economy a obviously contract a lot more this time, but the help that people have received has been much bigger this time around. Okay? And, and that's basically what we try to show on slide five, as Emiliano said, just in August and September $15 billion was injected into the economy, basically people's pockets. Obviously, some people have to use that for basic necessities, some people received it, and some people went ahead and continue paying off their their loan obligations. Another really important factor. There's two other very important factors comparing this a crisis with 2009. First of all, today, our coverage ratio is already at 200%. Okay. And in consumer lending, which is already finished the the payment holidays, it's more than 500%. Back in 2009, our total coverage ratio of NPS was only 74%. Okay, so over the last, you know, 10 years, it because of internal changes and regulatory changes, we've really built up our coverage ratio. So that's a big reason why the cost of risk is, is is trending much better this time than the previous crisis. So I think that's really good news. The other thing is, remember, we've been saying for a long time, back in 2009, a Santander Bonanza represented probably, you know, 12 to 15%, of our loan book for individuals, OK, um, after the what happened in 2012. With a with the increase in a decrease in maximum rates and other regulations. Remember, we got out of that business. Today, something did the low income is less than 1% of our loan book. That's absolutely key. And also is why this time around, the cost of credits was significantly, nothing but different to try and then when it wasn't 2009. So it makes for a much more productive government this time around a much higher coverage ratio built over the years, and a significantly different loan mix has ended up in this lower cost of risk.
Ernesto Gabilondo -- Bank of America -- Analyst
Super helpful. Thank you so much.
Emiliano Muratore -- Chief Financial Officer
Thank you.
Operator
Thank you. Our next question comes from Juan mikaze[Phonetic] Scotiabank. Your line is open.
Juan mikaze -- Scotiabank -- Analyst
Hi, good morning. Thank you for taking my question. So my question, I have two questions, one related to provisions and the second one related to expenses. So in terms of provisions, and taking into account the positive evolution of the scale and reprogram loans, and the fact that you are expecting additional provisions, or you should Yeah, additional provisions in the fourth quarter. How should we think about provisions in 2021? In next year, what's the base case that you're working on? And then the second question related to expenses? So we've seen that non interest expenses rose around 3%, so far this year? And so we have what what non interest expenses growth? Can we expect in 2021? What what's the base case that you're working on? Thank you very much.
Robert Moreno -- Managing Director of Investor Relations
Okay. Thank you. Thank you for the question regarding provisioning for 2021. That's with like, long term under the current circumstances. So we don't want to give much guidance on 2021. Yet, as you can see, the our forecast for last quarter is relatively encouraging, because we are seeing the cost of risk Anwar, around 1.2 1.3, even considering additional provisions. And that why is that the case, because basically, the situation of the portfolio, the behavior of clients in pain, that that has been so good that, let's say that the natural cause of risk is going even below pro covid levels, which at this time with thing that it's maybe too aggressive to, to, let's say, take advantage of that in order to build up some additional provisions and increase coverage. So look at the baton to the president one as I said it's a bit long term because we are still waiting for the evolution of the of the pandemic here. We haven't had a second wave yet. But there's a risk that we may have it but it's also true that we have built a good standing have one type of issue, the coverage is high. So we are let's say relatively comfortable looking into 2021 under relatively benign scenario.
And so it's it's not to say it's not easy to see costs of race content anyone going above this year, and the base case scenario that we need some more time, maybe five for the next quarterly call, we will have more visibility over a potential second wave and we can give more more guidance. So we don't, we don't want to go much farther than this guy down. So over the fourth quarter, and every other expenses, basically our idea is to give the discipline on a vision, see our expenses, and that means definitely not growing up of inflation. I mean, that's, that's the kind of bread hold we we always try to try to keep to have expenses growing at or below the inflation rate. So you can expect that for the future when expenses not growing above inflation, and hopefully, slightly below we don't want we don't want to strangle the say the Batman plans and all the digital things we were doing. So that's why we never we never target efficiency go in the extremely low we've got at the end. We think that might be bad for for our business, but but definitely keeping keeping the discipline on cost and not growing above inflation.
Juan mikaze -- Scotiabank -- Analyst
Thank you. that's very nice. Thank you so much.
Operator
Thank you. [Operator Instructions] Our next question comes from Sebastian Gallego with CrediCorp Capital. Your line is open.
Sebastian Gallego -- CrediCorp Capital -- Analyst
Hi, good morning. Thanks for the presentation. I have a couple of questions going back to the Constitution. I think this is a key point. And maybe just a follow up on our previous question. I know you mentioned a couple of points. But I just want to ask, what are your main concerns going into his new constitution? This should be a long process. The outcome of the Constitution vote was unexpected in terms of of the gap between the yes and no. And I'm just I'm just wondering if you could provide more color on what are your main concerns going into the into the constitution process? And what could be a potential game changers for the industry? Second question is is kindly related to the first one but is more associated? Or more broad in terms of regulatory risk? We have seen regulatory risk increasing not only in Chile, but also in other countries of the region. What are your main concerns in terms of regulatory risk going forward? That will be the two questions? Thank you.
Emiliano Muratore -- Chief Financial Officer
Okay, thank you. Claudio Can you please comment on the first?
Claudio Soto -- Chief Economist
Yeah. Okay. So in terms of the extension of the process, it will take you up to two years, it's already defined, the first stage is April with the election of the Constitutional Convention members. And then they will have up to a year no more than that, to produce an outcome. And then there is the exit referendum. So the process, the extension of the processes is that one, it cannot be longer than that. If the exit referendum a turnout to the people to not to reject the proposal of the Constitutional Convention, then we will remain with the current constitution that that is pretty clear. Now, what are the key elements of the constitutional debate if you if you follow more or less what are discussing several stakeholders? The first one I would say is the political system. Tina has a very procedure, the insulation system that has been a has created certain tension that we see currently with a with the parliament, but also in terms of their regional distribution of power, and so on and so forth. So the first element will be on the on the political system, to in a way, sort of soft out a little bit today, the power of the president in favor of the of Congress, and also probably in favor of regions within the within the country.
The second discussion is about the so called social rights. It's possible that in the Constitution, we'll get more social rights. It's not clear yet what is the what will be the status of those rights, where those will be sort of, you know, roadmap for the political public policies in along term a horizon or there will be some mandatory requirement for the state to sort of provide certain basic rights that there is there is that you, you start putting pressure on the on the size of the state and put pressure on the on the on the level of expenditure. But it's not clear yet, what will be the final outcome in that term or discussion or about the recognition of indigenous people. And there might be certain a discussion in terms of property, about the mining code, and about the water right. In the case of the mining code, the tradition in Chile is goes much beyond that the constitution that we currently have in Chile has been historically a country where the mining sector is very important. Therefore, we don't expect too much in these changes there.
In terms of water rights, there have been a discussion since eight years already going through in Congress, and probably there, there will be some amendments on what we have now, in terms of getting the government or the state more tools in order to, to manage the use of water and to read ratio. The the, you know, the use, say for human, you know, consumption as the first level in terms of the, you know, the the different possible uses that we have with water, I would say those are the sort of key elements of the constitutional reform. There is nothing specific about the financial industry that we can foresee in the discussion, currently. And now, the risk, of course, the risk of the tax burden going into the future, as long as the outcome of the constitutional process tend to put more pressure on fiscal expenditure and therefore, eventually there will be some need of a raising revenues. But that is a second round, I think, outcome of the of the process. What is more, I think more. On top of the list is the discussion about the political system.
Robert Moreno -- Managing Director of Investor Relations
And thank you, while you're going through your your second questions, regarding relative risk, I agree that in this context, that risk risk has increased. It also I think, true that in JIRA, I think we are a bit like ahead of that trend. I mean, when when you look back, what will what has happened in the last 10 years, I was here writing a list, I have like a 10 or 12 different points from them, the reduction of the maximum legal rate now the portability, law, the introduction of the this auction in process for insurances of mortgages, the rate, automatic repayment of overdraft lines, the provision of overdraft fees, the phrase on prices, the law that, let's say makes banks like responsible for or digital fraud or for clients. And also you can also include the increase in taxes that the country has had. So we have got a lot. So looking forward, it's not so easy to imagine other areas where we go have more relevant weather officials. As of today, there are only two initiatives being discussed at the different at a very early stage but being discussed. One is like a project that the Minister of Finance took to the Congress in May or June regarding regulating interchange fees. And that's that's not relevant for our business. Today, because we are not yet in the in the acquiring business. As you know, it's one of our initiatives.
So that is still in very early discussions. And we think that maybe out of that, we get some kind of regulation on interchange fees that we feel comfortable to spec, the government tried to balance all the different aspects of the payment systems and trying to promote more adoption of cards and electronic payments and all that in favor In contrary of cash. And that's why we don't we're not very concerned that says and the second is one that was approved by the lower house last week regarding insurances. Now we have the senate of the finance Commissioner of the Senate, already the Minister of Finance and the president of the financial market Commission, the financial regulator, were presenting and they basically they, they stated that they see this as a not good or positive project for for the system for the for the economy. Basically, that project, asked the banks to pay for half of the cost of the different trades related to insurances. So that's something as I said, in earlier discussion, we expect that's not to progress in the Senate, in general, the regulator and the government is showing their concerns. But apart from those two initiatives, then it's difficult to imagine other areas where we're gonna have more revelation apart from the ones we already we already have.
Sebastian Gallego -- CrediCorp Capital -- Analyst
Very, very clear. Thank you so much.
Operator
Thank you. Our next question comes from Gabriel Nobrega With Citigroup. Your line is open.
Gabriel Nobrega -- Citigroup -- Analyst
Hi everyone. Good morning. Thank you for the opportunity to ask questions. I also have two questions. My first run is sort of a follow up toward provisions, I understand that you're saying that 90% of the clients which have adhered to the grace period program, they are already paying, we're also having the benefits from the pension withdrawal. And you also mentioned that, if there is a second pension, withdrawal, this could even help more the delinquency of your clients. So I'm just wondering if maybe you made too many provisions. And if we tend to expect a reversal of provision, and during and as from for my second question is actually related to ambivalence? We're seeing that term common equity tier one ratio reached levels of around 10.7%. And you're guiding that we're supposed to start seeing better net income through the upcoming quarters. And so I am just wondering if you could not maybe rate your historical payout ratio, which, if I'm not mistaken, has been around 50 to 50%. It's if it could not even be higher next year, I'm given some higher capital that you have and also better prospects for organic capital generation over coming quarters. Thank you.
Robert Moreno -- Managing Director of Investor Relations
Okay, thank you. I will take the first one. I will leave the second one for Robert provisions. I mean, I think that we are not expecting any reversion of one day provisions in the short run. I mean, we have seen that in some other players in the market. We don't think that. Now is the time to do that. Going forward. Definitely. If the pandemic begins to let's say, get better, the second wave is not as bad as in other places here in Chile. And delinquency keeps up this levels. Definitely, we won't stop building Walter provisions. And there's a chance at a certain moment in time to think about reversions. But I don't see that in the in the near in the near future. But as you can see, even building one day provisions, we expect to have cost of risk based on levels. And I'm definitely going to the previous questions at much better levers than the 2008-2009 crisis. And so yeah, I think it's fair to expect that but in in the long run subject to this trends given in place, I mean, the uncertainty today, I think that it's high to think about reversing provisions instead of keeping them or even increasing them if the underlying delinquency, quality stays as good as it's now.
Emiliano Muratore -- Chief Financial Officer
Okay, and regarding the other question, dividend and dividend policy. You're correct. As we said in the presentation, we finished September with you know, a core capital ratio of 10.7. That was 78 and 70 basis points higher than in June. On top of that, is our total BS ratio reached 15.1, which is the highest level since 2010. And that's why, you know, the board is proposing an additional payout this year. of the percent of 2019 earnings that we didn't pay. Remember, in April this year, we had a payout of 30. We're paying out another 30. So the total payout for 2019 earnings will be 60%, similar to what we paid and previous periods going forward, you know, how much will we pay in 2020 earnings. Once again, everything is pointing toward going back to a more normal a payout. Okay. But as we said, regarding, you know, like the forecast the provisions and so forth, there's still a lot of uncertainty, OK, but if, if trends continue, you know, we should be paying around 60%, we don't rule out going again to this 3030 payout method, because that gives you a little more flexibility in an uncertain times.
But, and on top of that risk weighted asset growth has been relatively low in the second half. As we said, in the in the in the in the call it we're kind of at an inflection point where there's a lot less demand for clients for emergency funding and, and for proper loans. But we still haven't seen a reactivation of loans like a consumer, eventually that will come. Okay. So next year, there could be a rebound and long grow if the economy continues to, to rebound. So and don't forget that in December of next year. We begin with Basel three, everything points to, for now, at least, that our Basel three ratios will be very similar to what the Basel one ratios are. So, to make it a long story short, everything is pointing to going back to a payout, normalized payout. That's why we're paying something more now. And by given the uncertainty is a, it's not 100%. Sure. So but we should be a going back to 60% payout over 2020 earnings. But once again, it depends on what happens in the next few months.
Gabriel Nobrega -- Citigroup -- Analyst
Perfect, thank you so much.
Operator
Thank you. Our next question comes from the line of Gustavo Sarmento with Goldman Sachs. Your line is open.
Gustavo Sarmento -- Goldman Sachs -- Analyst
Question is regarding the loan world you just mentioned that you should we should expect to be bound next year. I wonder if you could share reverse more info about the long road to expecting especially in the leaks to the expect the better leaks for aim next year. I mean, could you could you elaborate more in which lines should be should we focus on next year? Thank you.
Emiliano Muratore -- Chief Financial Officer
Thank you for your question Gustavo. yes, I mean, going forward, again, we need to talk about uncertainty, but I think that there are a couple of bullet points. Point your question that first. This video we are showing consumer loans falling or asking for the system, I mean, because of the say the low consumption in the economy, but also the deleveraging we have seen in households from the the money they got from the government and from the pension funds. So, I think that for going forward, we can expect consumer loans to grow to say faster than the rest of the portfolio considering the starting point considering therefore we are having this year that should be good for for names, I mean, the mix in that sense should be better. We think that for as a whole, we expect the multiplier to GDP, I mean last long growth to GDP multiply for next year, we expect it to be slightly below them historical historical terms as a whole, but then the breakdown with respect consumers to be given loans to be above that, and commercial loans to be below that, because in On the contrary, this year, we had all the pull up a program that basically represents like 11% of the portfolio. So basically this year, if you factor out that for that the loans that commercial loans would have been falling also, they are not falling and they are double digit growth because of that.
So that's on the other side gives a static point relatively high, which should make commercial loans to grow below the rest of the before the below consumers but also talking about the margins on the consumer loans. Remember that the all the product the loans were granted as a fixed spread of 3%. And so that going forward the origination We don't expect it to be the say on parabolas. As you can see in the presentation, the demand For that has been going down. So the margins in the consumer in the commercial origination won't have this fixed price, which can give some room to also improvement on in the margin on the on the commercial loans, origination. And as a next, we can expect to have a favorable mix on the spreads going forward, because because of their mortgages, they will be they stayed growing relatively high until the meet that means here, they have this this year. Now, they are this as they have decelerating, we expect to do have to say more normal growth going forward, maybe more in line with the average, the average portfolio and also a spread for for mortgages. Are they at a decent level, decent levels compared to the some years ago, where spread spreads were, say, below 100 basis points today. They're in better and better levels. So that's, that's I know, Bob, if you want to add?
Robert Moreno -- Managing Director of Investor Relations
Yes, that's basically it. So for Nin, Val, look, him is a little better, as we said, you know, names were a little low on the second and third quarter, because of all of these factors, we've been defending ourselves relatively well. All right, is growing a lot. And because we have expanded the balance sheet, but next year, I would say the balance sheet, maybe not even grow that much like this year. And as we normalize the quiddity. But I think it alone makes should be better. And obviously, there could be the rate should remain low or deposit costs, our interest bearing deposit should, you know the costs remain low and and there could be a little bit higher inflation. We should also help names a little bit as well. So I would say in general, in the outlook for for low mixed is slightly better beginning next year. And the four names beginning already in the fourth quarter.
Gustavo Sarmento -- Goldman Sachs -- Analyst
No, very clear. Thank you very much this one from our PSL watching that you have probably a better in my end next year considering information that we've had that Sam. And I mean, if you have some normalization and revision, so should be expected 60 to 72% next year as well.
Emiliano Muratore -- Chief Financial Officer
We'll want to talk much about are we going next year budget I mean that the part on the revenue side on the provisionals are like you said, I mean, then yes, you can do the math and you demonstrate to the level that the uncertainty on cost of risk is still higher, I would ever say that maybe it's higher than done on on the name side that all the forces on the name side are I think that relatively predictable if you want because inflation definitely should be a rebound and the mixed effects effect which have made men which has mentioned will be there. But then to talk about the with a high level of set of certainty about costs of race. It is too early for for us.
Gustavo Sarmento -- Goldman Sachs -- Analyst
Okay, thank you very much.
Operator
Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.
Emiliano Muratore -- Chief Financial Officer
Well, thank you very much for taking the time to participate in today's call. We look forward to speaking with you again soon. Thank you.
Operator
[Operator Closing Remarks]
Duration: 64 minutes
Call participants:
Emiliano Muratore -- Chief Financial Officer
Robert Moreno -- Managing Director of Investor Relations
Claudio Soto -- Chief Economist
Ernesto Gabilondo -- Bank of America -- Analyst
Juan mikaze -- Scotiabank -- Analyst
Sebastian Gallego -- CrediCorp Capital -- Analyst
Gabriel Nobrega -- Citigroup -- Analyst
Gustavo Sarmento -- Goldman Sachs -- Analyst
