Banco Santander Chile's 'A+' IDR Remains on Rating Watch Negative

BUENOS AIRES, Argentina--(BUSINESS WIRE)--Fitch takes various actions on Banco Santander Chile's (BSC) ratings as follows:

--Foreign and local currency long-term Issuer Default Ratings (IDR), rated 'A+', remain on Rating Watch Negative;

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

--Long-term national rating affirmed at 'AAA'(chl);

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

--Individual affirmed at 'B';

--Support affirmed at '1'.

The Outlook on the National Long Term Rating remains Stable.

At the same time, Fitch has affirmed the national long-term rating of 'AAA(chl)' on BSC's senior unsecured bonds totaling CLF75.5 million, the national long-term rating of 'AA+(chl)' on its subordinated bonds totaling CLF28 million and the National Equity Rating of Primera Clase Nivel 2 (chl).

The ratings of BSC reflect the potential support from Spain's Banco Santander (Santander, rated 'AA/F1+', Rating Watch Negative) 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.

BSC's foreign and local currency long-term IDRs are on Rating Watch Negative (as of Oct. 14, 2008) following the same action taken on Santander after the announcement of its intention to acquire Sovereign Bancorp Inc.

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

BSC's net interest revenue has grown strongly (up 29.8% year over year in the first half of 2008, ended June) fuelled by strong loan growth in consumer and SME loans and benefiting from a low cost deposit base and a higher yield on its inflation-indexed (unidad de fomento, or CLF) assets due to a higher inflation rate. In addition it has been widening spreads to compensate for the higher risk of its loan portfolio.

A weakening operating environment and the bank's more retail oriented loan book has led to a steady rise in loan loss provisions. However, its overdue/total loans ratio remains low at 1.12% at end-June 2008 as defined locally (installments overdue by 90 days), supported by higher charge-offs; loan loss reserve coverage of 173.3% was adequate. Under the Spanish definition of overdue, which is more internationally comparable, the overdue loans ratio would be around 2.5%, which is still acceptable. Credit risk is expected to increase further as the portfolio seasons but it should remain manageable as BSC has taken measures to control it.

The bank complies with stringent domestic liquidity regulations and benefits from a historically stable and well-diversified deposit base, which represented almost 100% of the loan book excluding mortgage loans, which are financed with long-term liabilities. Its capital base is good, with a capital/risk-weighted assets ratio of 12.9% (Tier 1: 9.6%) at end-June 2008. Subordinated debt, which has high equity-like features, represented around 26.3% 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 20.6% in total loans and the largest network with 468 branches at end-June 2008. 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(chl)' for national ratings in Chile.

The credit research on BSC is available on the Fitch Ratings web site, www.fitchresearch.com, or by contacting the Ratings Desk in London at +44 20 7417 6300.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.