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Chile has seen its way through the worst of the pandemic in an economically responsible fashion while also managing significant political transformation, guests on the most recent episode of the Focus Americas podcast said.

Diego Masola, Executive Vice President and Country Head of Scotiabank Chile, and Jorge Selaive, Chief Economist for the Bank in Chile, joined John McCartney, head of Investor Relations, to discuss the outlook for the South American country. They also discussed Scotiabank’s growth in Chile and commitment to the South American country.

Selaive said Chile has been going through a hectic period politically, between the election of a new president and the ongoing process to create a new constitution. He said the new president, Gabriel Boric, has managed the economy in a responsible manner so far, with help from his Finance Minister, who was previously President of the Central Bank.

 Masola said Scotiabank is working closely with its Chilean clients to help them reach their ESG goals.

“ESG and climate change mitigation efforts are here to stay, and we continue to look for opportunities and ways in which we can support our clients though the transition with important investments that will help them achieve their sustainability goals,” Masola said.

He also highlighted the growth Scotiabank has seen in Chile, and how the Bank's full range of financial services makes it unique in Latin America.

“A core strength of our Bank … is displaying the full array of Global Banking and Markets products and capabilities throughout our footprint,” he said. “Our connectivity in the Pacific Alliance is key, but furthermore the teamwork and coordination we consistently achieve with Canada, the United States and other countries in the region exemplifies what Scotiabank is about.”


Stephen Meurice: Welcome to Focus Americas, brought to you by Scotiabank Perspectives. I’m Stephen Meurice. 

This series examines economic and political developments affecting countries across the Americas. You’ll hear thought leaders from inside and outside the Bank give their insights on the forces that are driving those developments. From Canada in the north to Chile in the south. 

And today that’s exactly we’ll be talking about – Chile.  

You’ll hear a conversation led by John McCartney, Senior Vice President of Investor Relations here at Scotiabank.  

He’ll be speaking with two guests. Diego Masola is the Executive Vice President and Country Head of Scotiabank Chile. And Jorge Selaive is the Chief Economist at Scotiabank Chile.  

There’s a lot to cover. From the recent general election to the Constitutional Convention to Omicron to what the future looks like for the country. 

So, let’s get started — here’s John McCartney. 

John McCartney: Jorge, Diego – thanks so much for being here. 

Jorge Selaive: Hi John, thanks for the invitation.

Diego Masola: Thanks for having us.

JM: Great, let’s get right into it — two big political happenings obviously in Chile these days. The start of Gabriel Boric’s first term in office — the new President.  As well as the ongoing work for the Chilean Constitutional Convention.   

Jorge, starting with Mr. Boric, maybe you can give us a sense of how his Presidency is going so far in your view? 

JS: Mr. Boric was elected as the new president of Chile for the next four years with 56% of the votes. Remarkably, in his first speech he mentioned fiscal consolidation, property rights and structural reforms to move Chile closer to a developed economy. And during his first 40 days, his government, including all the cabinet, has worked intensively to agree on tax, pension, and healthcare reforms. We cannot avoid mentioning the new Minister of Finance, Mario Marcel, who accepted the appointment as the most important minister of the cabinet after being President of the Central Bank for the last three to four years. Mr. Marcel has been able to convince the Congress about the need to bring fiscal sustainability after two years with government expenditure expanding about 20% year-over-year in real terms. Mr. Marcel, with the support of the President, has also been able to work on a new tax reform that will be submitted to the Congress during the third quarter of this year. And the idea of the government is to increase the government expenditure to satisfy the social demands but in a responsible manner, avoiding — and that’s very important, John — avoiding over-indebt of the country.    

It has not been easy for the new administration. Since the pandemic is not finished, the Congress was asking for more fiscal transfers and even a new pension fund withdrawal. Fortunately, the political ability of the government prevented a massive new injection of liquidity to household pockets. Well, overall I would say that Boric's government has been responsible in the economic affairs up to now, John. 

JM: Okay, given the Constitutional Convention has been ongoing, could you provide an update as to the work that is being done and what we can expect in terms of next steps? 

JS: Well, I’ve received that question many times during the last few months. Let me first tell you that on September 4th, we will have a referendum to approve or reject the proposed new Constitution. In the meantime, the assembly is writing down the new draft of the Constitution. 

And what are the main issues we should pay more attention to? I would say those related to private property rights and quality of institutions. For the former, we do not see relevant changes that might affect investment appetite by now. For the second, heated debates have been taking place on the composition of the congress, the judiciary system, and the new pension fund system. We are expecting to have the new constitutional draft to have a clearer understating of the political and economic implications, but what we can say for now is that the more traditional forces, political forces are trying to agree on matters that do not affect the great history of economic success of Chile of the last 40 years. Since we will have an exit referendum around the corner, the more traditional left-wing parties and the right-wing coalition are working hard to submit a draft with higher probability of being approved amid polls pointing to a rejection by 55% of the voters. We will have very hectic weeks ahead in the political arena before voting for a new constitution. In August we will be in the middle of the political campaign for the referendum.

JM: That’s a great overview, Jorge. Top of mind for everyone obviously is COVID here. Diego, you’ve been at the forefront of this pandemic with respect to our operations in Chile.  

Tell us a bit about how Chile has fared during the pandemic, including through the recent Omicron wave. 

DM: Yes John, thank you. Chile was one of the first countries to initiate the vaccination process in February 2021. Only 11 months after the first case of COVID was detected back in March 2020. But it was not only about vaccination, it was also that the government implemented very strict lockdowns that affected the performance of the economy, obviously. But at the same time, we continued with the vaccination. And all this performed very, very well since as of today, we have 92% of the population with two shots, 74% of the population with three shots and 22% with four shots of vaccines. So, with all this, Chile currently has the third-highest share of people vaccinated in the world and mobility was almost normal back in March. We cannot rule out to have new waves of COVID, obviously, during the near future, but since the utilization of hospitals is normal and the share of people vaccinated is so high, we are not anticipating strict lockdowns again as the ones we saw during 2021.   

JM: And despite the pandemic, Diego, the teams continued to deliver strong results. In fact, last year’s earnings exceeded pre-pandemic levels. What were the drivers of that growth? 

DM: Our team in Chile has shown strong commitment and resiliency to reach the goals. That’s the number one thing. And we owe it to them, to our team. And let me elaborate a little bit more on this.    

Scotiabank has been present in Chile since 1990 following the acquisition of a minority interest in Banco Sud Americano. That was our first acquisition. But then we took over 100% control of Banco Sud Americano. Then we bought Banco de Desarrollo. And finally, in 2018, Scotiabank announced the acquisition of all operations of 75% of the shares of BBVA in Chile and the other 25% in the hands of the Said family. So back in June 2021 and up to March 2022, we announced the acquisition of this remaining stake, the 25% of the Said family in Scotiabank Chile. So now, as of today, we can say that we control 99.8% of the shares of Scotiabank Chile.

With this, Scotiabank Chile is now the third bank in total assets with 14.3% market share. Second bank in retail assets. Second bank in mortgages. First bank in corporate banking, debt capital markets and so on. So we are very excited for Scotiabank Chile to maintain a strong digital transformation and with Chile's high digital-adoption rate gained during the pandemic, we can look to lead the PAC Alliance in this aspect. We are in the top two in efficiency ratio in Chile. Our cost-to-revenues are around 40% depending on the month. Between 39% and 42%. And we’re very proud of this ratio, mainly because of the automation strategies and the digital transformation we’re performing. 

We also have important technological advances in Corporate and Commercial banking. Especially trying to connect all the Pacific Alliance countries under the same technology platform, named Conectados, which should bring an important competitive advantage, specifically for our Pacific Alliance customers who will enjoy seamless one-stop shop solutions. To continue growing, we have four main strategies for the next couple of years. Number one, maintaining our leadership in mortgages, corporate and capital markets. That means keep doing well what we are already doing well. Number two, keep our investments in digital and automation transformation. Number three, keep investments in SMEs. And number four, maintain our investment and our strategy to increased market share in wealth management.  All of this confirms the importance of the Chilean market for Scotiabank as a whole, as it continues to show that Chile’s the most important platform outside of Canada and the United States of America. 

JM: Great. Latin America obviously presents a lot of opportunity for Scotiabank to be a force for positive change. Let’s start with you, Jorge. Maybe we can have you touch on how the economic potential from an ESG perspective looks to you in Chile. 

JS: Sure John. In Chile, there is impressive development and increasing awareness regarding ESG factors and purpose-driven companies. There are several listed companies, investment funds, private NGOs and public organizations encouraging and adopting ESG factors and purpose-driven companies when investing or conducting their businesses. Similarly, there are several governmental agencies leading the change for their adoption and promotion, including the banking regulator. In fact, the regulator organized round tables with representatives from public and private sectors to strengthen the adoption of ESG principles. The Ministry of Finance as issuer of sovereign green bonds, being the first American country issuing them. The Ministry of Housing has been working on the promotion and certification of sustainable housing. The Tourism National Service developed a certification for sustainable tourist operators in order to promote their activity. Also, the Santiago Stock Exchange adopted the Sustainable Stock Exchange initiative and has participated in the creation of sustainable indices. So, overall, I can say that Chile is working hard to adopt, to implement, ESG factors all over the economy.

JM: Okay, and how about you, Diego — can you talk about our ESG efforts in the country? 

DM: So, John, Scotiabank’s a market leader in ESG financings in Chile, with over 25 relevant transactions totaling $25 billion over the past three years. We are an important contributor to Scotiabank’s global commitment to mobilize $350 billion in capital to mitigate climate change.   

So, working together with our ESG team in Toronto in two sectors — financings and advisory services. In financings, we are doing green, social, sustainable, transition bonds, loans, sustainability-linked loans & bonds, labelling and framework development; also offering other solutions. But on the advisory service, we are offering ESG strategy and integration, investor relations, ESG reporting, ESG ratings and index inclusion, among other solutions. We are very, very proud of this exercise and this investment we are doing in ESG.

Chile is at the forefront of mitigating climate change in Latin America, definitely we are leaders. An example is committing through international policies to achieve net-zero targets, changing its energy matrix through investing in renewable energy and a decarbonization process. Some examples of this, acting as advisor and joint bookrunners for important 144A international bond issuances. For example, ISA $1.2 billion, Colbún $600 million and Grupo SAESA for $390 million, among others.

Additionally, Scotiabank has been working with the government of the Republic of Chile, acting as advisor and joint bookrunner for the last four social international bond issuances for Chile, totalling over $7.5 billion. 

The global investment needed to achieve net-zero targets and truly mitigate climate change are estimated at over $1 trillion per year by 2050 and Scotiabank Chile is committed to being a leader in ESG efforts and a close partner with our customers to look to mitigate this impact. 

Therefore, together with our head office in Toronto, we locally and financially support the Center for Climate Science and Resilience and the Energy Center, both at the University of Chile, within the framework of the Net Zero Research Fund initiative. This project, as you know, will allow the development of annual estimates of GHG emissions from the energy sector and the carbon budgets of this sector, with a one-year lag. Which will provide more frequent and updated information than currently exists for independent monitoring of Chile’s compliance with its mitigation commitments. 

ESG and climate change mitigation efforts are here to stay, and we continue to look for opportunities and ways in which we can support our clients though the transition with important investments that will help them achieve their sustainability goals.

JM: That’s a great overview. ESG is obviously a key thrust of the overall organization. To wrap things up today with you Diego, at Scotiabank, we obviously talk about being a leading Bank in the Americas. What role does Chile play in supporting that Bank agenda. In particular, if you can talk to the connectivity between Chile and the rest of the Pacific Alliance countries as well as Canada and the United States. And what does the future look like for Chile? 

DM: Yes, a core strength of our Bank, and being the Bank of the Americas, is displaying the full array of Global Banking and Markets products and capabilities throughout our footprint. Our connectivity in the Pacific Alliance is key, but furthermore the teamwork and coordination we consistently achieve with Canada, the United States and other countries in the region exemplifies what Scotiabank is really about. As the most developed economy among the PAC, it has shown clear signs of respect for the democracy and institutions. We are truly believers that the country will emerge strengthened from the constitutional process. The economy will walk closer to a developed economy, which is a clear advantage for the banking sector as household debt over GDP, now is around 47%. And we expect this will expand closer to Canada’s 80% ratio in the coming years. 

The PAC is a block of countries with many similarities. The Pacific Alliance is the eighth economic power and the eighth export force worldwide. And in Latin America and the Caribbean, the block of countries represents 38% of the total GDP, 50% of the total trade, and attracts 45% of FDI, foreign direct investment. So, the four countries gather a population of 225 million people and have an average per capita GDP of $18,000. 

So, Canada and US are the first main sources of foreign direct investment in Chile and top five among the rest of the PAC. The international financial integration between the PAC and Canada has a long history, and that goes from the mining to the banking sectors. Chilean exports to Canada are close to $1 billion, and the same amount is exported from Canada to Chile.  

A great example is how our Wholesale Banking team is consistently leading important transactions in Chile and the region with international players such as Enel, ENGIE, Ontario Teachers, BHP Billiton, Anglo American that share our footprint. And also, Chilean customers looking to expand in the Pacific Alliance or the Americas such as the Molymet issuing a local bond in the Mexican market, or Parque Arauco’s liability management in Peru. This can also be exemplified by supporting important relevant clients from Mexico, Colombia, and Peru here in Chile, such as América Móvil with Claro, EPM with Aguas de Antofagasta or ISA with Intervial and InterChile. 

JM: That’s great. Obviously, a lot of synergy and opportunity there in terms of corporate and government relationships throughout the footprint. 

Diego, Jorge – thanks so much for your time today, really enjoyed the chat.

JS: Thank you John for the invitation.

DM: Likewise, John.

SM: You’ve been listening to Focus Americas .

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We’ll see you next time.