Fitch Affirms Banco Santander Chile's IDR at 'A+'; Outlook Stable

Fitch Ratings has affirmed Banco Santander Chile's (BSC) ratings as follows:

--Foreign and local currency long-term Issuer Default Rating (IDR) at 'A+', Outlook Stable;

--Foreign and local currency short-term IDR at 'F1';

--Long-term national rating at 'AAA'(cl), Outlook Stable;

--Short-term national rating at 'N1+(cl)';

--Individual at 'B';

--Support at '1'.

At the same time, Fitch has affirmed the national long-term rating of 'AAA(cl)' on BSC's senior unsecured bonds totaling CLF81.4 million, the national long-term rating of 'AA+(cl)' on its subordinated bonds totaling CLF27.7 million and the National Equity Rating of Primera Clase Nivel 2 (cl).

The ratings of BSC reflect the potential support from Spain's Banco Santander (Santander, rated 'AA/F1+', Outlook Stable) given BSC's strategic importance and integration with its parent, as well as its strong historical profitability, healthy asset quality, leading market share and good capital adequacy.

Profitability has historically been strong, backed by healthy operating revenues and strict cost control. Although loan loss provisions have risen as the economy has worsened, continued interest and fee growth and cost control should continue to support its profitability.

BSC's net interest revenue has grown strongly as the bank has been widening spreads to compensate for the higher risk of its loan portfolio due to the subdued economic environment and as funding costs have decreased. This has also offset the impact of negative inflation rates during the first half of 2009 (1H09) that affected the yield on the bank's inflation-indexed (unidad de fomento, or CLF) assets. Administrative expenses have remained under control reflecting the bank's focus on cost efficiency; at end-June 2009, its cost to income ratio was an impressive 35.8%.

A weakening operating environment and the bank's more retail oriented loan book has led to a steady rise in loan loss provisions (LLPs). However, at 2.4% of total loans, LLPs remain at reasonable levels. Non-performing loans remain low (3.1% of the total at end-June 2009), aided also by higher charge-offs; loan loss reserve coverage of 75.6% was adequate considering the high level of collateral. Credit risk is expected to remain at reasonable levels.

The bank complies with stringent domestic liquidity regulations and benefits from a historically stable and well-diversified deposit base, which represented around 127% of the loan book excluding mortgage and foreign trade loans, which are financed with long-term liabilities. Its capital base is good, with a capital/risk-weighted assets ratio of 15.1% (Tier 1: 11.1%) at end-June 2009, although these levels are expected to decrease somewhat as loan growth resumes. Subordinated debt, which has high equity-like features, represented around 20.3% of its eligible capital, which is within the 30% limit considered acceptable by Fitch.

BSC was the largest bank in Chile, with a market share of 20.1% in total loans and the largest network with 502 branches at end-June 2009. Spain's Santander has majority control of the bank, with a 76.91% stake; the remainder is widely held.

Fitch's National Ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign's foreign and local currency ratings are below 'AAA'. National ratings are not internationally comparable since the best relative risk within a country is rated 'AAA' and other credits are rated only relative to this risk. They are signified by the addition of an identifier, for the country concerned, such as 'AAA(cl)' for national ratings in Chile.

Additional information is available at 'www.fitchratings.com'.

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