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spk03: Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the ETAO CorpBanca Q3 2021 Financial Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this session, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Claudia Labe, you may begin your conference.
spk04: Thank you. Good morning. Thank you for joining our conference call for our third quarter 2021 financial results. Before proceeding, let me mention that our remarks may include forward-looking information and actual performance could differ materially from that anticipated in any forward-looking comment as a result of macroeconomic conditions, market risk, and other factors. I would also like to draw your attention to the financial information included in this management discussion and analysis presentation, which is based on our managerial model and which we adjust for non-recovering events and we apply managerial criteria to disclose our income statement. This managerial financial model reflects how we measure, analyze, and discuss financial results by segregating commercial performance, financial risk management, credit risk management, and cost efficiency. We believe this form of communicating our results will give you a clearer and better view of our performance through these different perspectives. Please refer to pages 9 to 12 of our report for further details. With us today in this conference call in Santiago are Mr. Gabriel Mora, CEO, and Mr. Rodrigo Couto, CFO. Mr. Mora will comment on the progress on our strategy and 2021 third quarter results. Afterwards, we will be available for a question and answer session. We have included a Q&A box on the console where you can type in your questions if you are not connected by phone. We will take questions from both the phone and the console. For the latter, we will read and answer your questions verbally. It is now my pleasure to turn the call over to Gabriela.
spk02: Thank you very much, Claudia. Good morning. Thanks for joining us for today's conference call. Today, we will present you the progress we have been making in our transformation program, as well as the highlights of our second quarter results. So starting on slide number three, we recap the five pillars of our ongoing transformation, based on disruption, customer centricity, simple and digital, innovative organization, and culture, and finally, sustainable results. On slide four, we give you some concrete examples of the progress we have been making on these five pillars. On the disruption front, we are quickly advancing towards launching the first credit cards with our RAPI Alliance, as well as making progress in scaling up our business model for investment centered on independent financial advisors. On customer centricity, we have made major strides in improving our NPS, which has been the fastest growing in the banking industry. On the simple and digital pillar, we have the best rated banking app on the Apple and Google stores, as well as the best banking website for SMEs. We have been moving quickly with the organization shift towards agility, expecting to end this year with 400 to 500 staff working in agile working model. Finally, we have achieved a turnaround in our performance in Chile. We have a clear and actionable plan for Colombia, and our strong ESG focus has been widely recognized. On the next slide, we'll go over some of these examples with more detail. On slide 6, we present an update of where we are with the HAPI Alliance. We are on the way with the family and friends phase, and we'll go live with the credit card launch on the first quarter of 2022. The first product will be credit cards with benefits in the happy topic one, no commissions and fully digital. We will provide physical cards to customers who want them, and we expect many will want them because it's in fact a beautiful card. But it can also be a virtual card for those who want it. The onboarding process will be fully digital and with models leveraged on happy customer data. New functionalities will be incorporated throughout the next year as we progress towards a more comprehensive digital product offering. Moving on to slide 7, we provide an update about how we are scaling up our business model for the investment business based on independent financial advisors. 60 independent financial advisors covering not only Santiago region, but also other main regions of Chile, where we have 10 advisors. We have also enabled the version platform for offshore investment. As we ramp up the number of advisors and customers in our IFA model, we are already observing how powerful this is for acquiring new customers for our full-fledged banking services. Up to this point, we have seen that 44% of our new IFA customers open accounts, for instance, on our private bank. Let's now move to slide nine, where we show the progress we have made in customer satisfaction. We are the bank with the fastest improving NPS in the country, according to the latest needs of service pool survey. We have improved our internal NPS by 44 percentage points, which is a remarkable improvement in a short period of time, based on the experience of the specialist consultants that we work with. We are very happy to have achieved an NPS of 62, but by no means satisfied. It is not enough for us to have a good NPS compared to other banks, as we are obsessed with customer experience and customer expectations are constantly evolving. Challenges to compete with leading players for every consumer industry. Now let's move to slide 11, where we present the evolution of one of the key aspects of our service model, our digital branches. Digital branches provide personalized service as well as the full functionalities of physical branches in a model that is more convenient for our customers. For example, due to the extended hours of service as well as being more efficient. Ultimately, our customers choose the best service model for them. So we only encourage customers to try digital branches if their profile indicates that it will be better served through those. nps numbers clearly indicate that our customer satisfaction with digital branch model is sustainable on the longer term we are pioneers of digital branches in chile and we are now rapidly scaling up the model we expect to the end of the year with six digital branches expanding to 12 next year In terms of customers, we expect to end 2021 with 42,000 customers in digital branches and more than double that to 100,000 next year. On the next slide, on page 12, we show how we are positioning ourselves as digital leaders, both through the content we generate and through the development of opportunities we provide to our employees. Our leader's vision in YouTube live stream keeps going strong, following the appearances of Steve Wozniak, Christopher Gardner, and with the chat of Kevin Michnik, formerly the world's most wanted hacker, who shared his tips of how to keep safe in the digital world. We believe that talent development, as well as attraction, is one of the main drivers that define the speed and extent of our transformation process. Therefore, we've been heavily invested in employee training and development of key capabilities for our digital transformation. Moving on to slide 14, where we show our progress in implementing an agile at scale model. We started last March with the first three agile communities. By the end of this year, we will have 500 staff, internal and external, working in 18 agile communities. Our plan for next year is to triple this number of staff in agile working model to 1,500, distributed in more than 30 communities, which will cover all of our main products and service lines. The implementation of this Agile at scale has been very important in increasing the speed of product innovation and adaptation to our customer preferences, which we believe would be one of the main drivers for further boosting our customer experience and NPS. On slide 16, we further expand on the topic of SESG. As I have mentioned in previous call, we have incorporated an ESG focus in all of our reasons. I have recently told you about our strong ESG commitment in our asset management business, about our wholesale banking ESG portfolio, as well as our adherence to global sustainability principles, such as the UN Global Pact, the equator principles, and the principles for responsible investments. We now highlight how we have been providing access to financial services to SMEs with over 11,000 new SME clients year-to-date. We have also financed several SME sustainable projects, such as pallet plant and solar energy projects we show as examples on this page. We also highlight our industry-leading team that affects the projects we finance along the key dimensions of environmental and social risk management practices. Let's move on to the next part of the presentation. On July 17, where we present the financial highlights for the third quarter of 2021, our consolidated net income was 59 billion Chilean pesos. mostly in the Chilean market that we operate. Consolidated return on tangible equity was 13.2% and return on tangible equity for our Chilean operation was 17.2% in this quarter. When we look to our profitability in nine-month period, we have a return on tangible equity of 16.9% on a consolidated basis, and 20.8% in Chile. Financial margins with clients grew 9.2% year over year, mainly due to strong position contributions from higher deposit volumes, increasing our net interest margin from 2.2% to 2.6%. This reflects our strategy, especially in a wholesale bank where we have been selected in deploying our capital only at acceptable return levels. Fees grew 30.6%, primarily due to higher financial advisory fees in Chile and Colombia, as well as an improvement in insurance brokerage fees in current account services and overdraft fees in Chile. Non-interest expenses increased 0.9% relative to the third quarter of last year, which is much lower than inflation for the period. Cost of credit was down 42.7% year over year, reflecting the benign credit conditions that we have experienced. When we look at our credit portfolios, we grew 0.6% in Chile and 2.7% in Colombia in constant currency compared to September 2020, with more biggest loans in Chile and retail loans in Colombia as the biggest contributors. In line with our goal of becoming the fastest growing bank in Chile, we're monitoring our position in ranking in terms of credit growth. Over the last 12 months, we have ranked number one in mortgage credit growth in both three-month and six-month periods, and have ranked number two in customer installment loans in the last six and 12-month periods, again, consistent with our strategy of increasing the share of retail in our business mix. On slide 18, we see how our loan portfolio mix evolved in the last 12-month period in Chile. Consistent with our strategy, we increased the share of retail loans in our portfolio from 32.8% to 36.3%, an increase of 353 basis points. Since the merger in 2016, the share of retail in our loan portfolio increased by 7.84%. we still see more attractive returns from growing retail. So we expect the share of retail in our portfolio to continue to expand, especially once consumer lending begins expanding again after the effects of the AFP withdrawals subside. Nevertheless, with our new head of wholesale banking, Sebastian Romero, having just came aboard in September, we are now starting a major transformation in our wholesale business, which will enable us to grow with attractive returns in wholesale banking as well. Moving on to slide 19, financial margins with clients grew 1.3%, quarter over quarter, mainly driven by liability financial margins. The chart on the right-hand side shows that our net interest margin was quite resilient over the last several quarters of low interest rates. Nevertheless, we believe our NIM will benefit from higher interest rates through an increase in liability spread as well as in financial margins from our own capital. On July 20, we showed the evolution of our non-interested which declined 1.9% year over year. Looking at the first nine months of 2021, we see an increase in non-interest expense of 0.7% compared to the same period of last year. The chart on the bottom left side compares our cost growth with inflation over the same period and demonstrates that our costs have grown much less than inflation over that period, which is consistent with our long-standing commitment of cost control. Even more significantly, the chart on the bottom right side shows us that the efficient ratio has improved over the last four quarters. Here on July 21, we can see our main credit indicators in Chile. Cost of credit in the third quarter was 29 billion Chilean pesos, which corresponds to 0.6% of our average loan portfolio. That is closer to the bottom of our revised guidance of between 0.5% and 0.8% for the year, and also below what we consider our steady-state cost of credit of 0.8%. Cost of credit did increase relative to the second quarter, but one must keep in mind that the second quarter figure was very low base of comparison. as it was positively impacted by some large wholesale credit recovers. NPLs declined in the department, as the good portfolio performance continued amid a benign credit condition. Nevertheless, inconsistent with our expectation loss provision model, we established additional provisions for the wholesale credit in sectors that we believe are still at risk of deterioration because of lingering effects of last year's crisis. Let's move to slide 22. Net income in Colombia was up to 32.3 billion Colombian pesos. NPLs were down and NPL coverage was up as we also proactively reinforced provisions for some wholesale credits consistent with our expected loss provisioning approach. Our turnaround plan for Colombia consists mainly on focusing growth on target segments and improving efficiency. We're starting to see some results on the growth front as our portfolio grew by 3.1% last quarter. On the efficient front, the downward trend continued in terms of the number of branches and headcount. We did have a one-off effect on administrative expenses this quarter. Nevertheless, even considering that effect, expense growth in the first nine months of 2021 relative to the same period of 2020 was 1.9% while below inflation. We are moving on with the implementation of our transformation program in Colombia, which we expect will have a major impact on efficiency next year. here on slide 23 we see that our fully loaded set one capital ratio was stable quarter over quarter we are completing today the first round of the equity offering for increasing the capital of the bank which we will address uh our capital position we will be providing updates that for that process as information becomes available now we move on to slide 24 which is our last We present a comparison of our performance in the first nine months of 2021 with the same period of 2019, which was the last normal, we'll say, nine-month period that we had. The main message is that the bank has achieved a major turnaround in performance, improving return on tangible equity from 9% to 16.9%, while surpassing pre-crisis revenues with much lower cost of credit and a very controlled cost growth. On top of that performance turnaround, we are implementing a fully fledged digital transformation, both in Chile and in Colombia, touching all performance levers, as well as positioning the bank as a disruptor in key markets. Our ambition is to be the fastest growing bank in Chile and achieve 13% to 14% consolidated return on tangible equity, including the capital increase in the short to medium term. We are on our way and confident we will get there. With this, we will conclude the presentation that we had for you today, and we'll gladly take any questions that you might have.
spk03: This time, if you'd like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, please press star 1 again. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Alonzo Arumburu from BTG Pactual. Please go ahead. Your line is open.
spk00: Hi, and thank you. Thank you for the call. Yeah, I have a couple of questions. The first one on what you mentioned on Colombia, on the efficiency efforts and the possibility of of large cost cutting next year. I mean, where is your focus there? Is it on cutting branches, more branches? Is it on personnel? Can you give us a little more color on where the cost cutting will happen in Colombia?
spk02: Sure. You mentioned two questions, Alonso.
spk00: Do you want to ask them later? Yes. The second one is on retail growth, which did nicely this quarter, both in Chile and in Colombia. And it was a little surprising and good to see that the growth in Chile, given the liquidity in the system. So I just wanted to get a little more color there as well. If you're seeing that maybe as a one-off this quarter, or are you seeing a recovery continuing in the fourth quarter as well?
spk02: Fantastic. Thank you for your questions, Alonso. When we take a look at the plan that we have in Colombia, we did a bottom-up approach and we end up with close to 85 initiatives that we have for Colombia. If I were to divide the business in Colombia in three different main pillars, we have wholesale business, That is, it's very close to remunerate our cost of equity in Colombia. We have a solid performance on treasury that from the last few years and this year also continues to remunerate our capital in Colombia. And the main challenge for us is in our retail business, given the scale that that we have in all these structures around retail. Distribution, products, and this kind of operation, that kind of support that our retail business needs. So the main focus for us is taking a look at the whole bank, but of course the most impact that we see on the short to medium term is on our retail position. If you take a look at the level of branches that we have for our client base. As well in terms of structure products that we operate, I think there are many things that we can take with synergies from Chile to rethink as we do distribution in terms of the digital branches that we have operated in Chile. So I don't think it's only taking a look at the footprint on branches. but taking a look at the whole retail business and rethink them. I think for some time we did in Colombia a strategy that was based in a mini Chile, meaning that we have the same structure, the same focus as a universal bank, But the problem is that in Chile we have roughly 13% participation in wholesale in the market, something around 8% on retail. And when it comes to retail in Colombia, we have 3%, 4% of the market. So I think that we have to rethink the strategy, adapting the structure that we have in Colombia to be more focused on the affluent client base that we have, and also with Elm, and preparing the growth in retail to happen more through the digital strategy than from the distribution network that we have nowadays. So I don't think there is a silver bullet in Colombia saying that, no, we do this, we will converge. I think there are products in wholesale that we are getting out of them. Security services is an example of a business that we are rethinking in Colombia. But most of the effort goes in our retail operations. The second question you asked about retail growth in China. And for sure, we see a dynamic in the market that, given the withdrawals from the pension plans, the market is flooded with liquidity. We see that effect on consumption. We see that effect on inflation. And all the effort that the central bank puts in changing monetary policy goes into the same diagnosis of what is happening to the markets. The flip side for that discussion is that we indeed see a lower aggregate growth in the economy. But then again, given the share that we have, I think that we can grow in some segments. For instance, in credit cards, our participation is much less than the fair market share that we should have given the size of our operations. So I think there are idiosyncratic opportunities for us in the market, but for the market as a whole, as you mentioned, I think that giving the prospects of a possible fourth withdrawal from the pension plans, what we will see is the continuous liquidity on the market and a lower aggregate growth. If we especially consider what is the long-term elasticity of credit growth compared to nominal GDP. I think that will be, people know that. But then again, I think that we were able to take share from consumer credit in the last few years, and our ambition is to continue to do so in the next few years. I know, Alonso, if I answered your questions.
spk00: Yes, Gabriel, thank you very much.
spk03: Our next question comes from Jason Mullen from Scotiabank. Please go ahead. Your line is open.
spk01: Yes, hi. Hi, Gabrielle. I have two questions. My first would be just if you can provide an update on the capital raise. And then with that new capital, talk about obviously the use of funds. We know you're going to buy the stake, and the intention is to buy the stake in the Colombian – um and then with that new capital if you can talk about forward-looking profitability levels sustainable profitability levels in in chile and colombia uh we've seen obviously the nine months looks great so far um on some metrics but we wanted to get um wanted to get your views thank you sure
spk02: Thank you, Jason. As we mentioned the capitalization process, the capital position that we have at Itovo Cortanca is something that we have been discussing with the market in the last few years and how we were going to do the convergence to the minimum capital levels with the implementation of the Basel III in Chile at the end of 2025, the boom implementation. So the capital increase that we are doing, I think it helps us in three different phases, or not phases, but objectives. The first one is for us to do a full convergence to the peers that we have on the market. So, when we take a look at the capitalization levels on an aggregate level in Chile, it's something between 9% to 10% for the largest banks. So, I think it's important for us to do this convergence. And of course, the capital increases is an important step on that face. The second one is, as I mentioned, the acquisition of the participation that we don't have in Colombia. That's an obligation that the bank has since 2014, when the merger of Itaú, Chile, and Cordonca happened, and we intend to do that at the beginning of next year. And the third point, it has to do with all the investments that we are doing, technology, digital transformation that we are doing for the bank. At the end of the day, having a more sustainable capital base will enable us to continue the level of growth and investments that we've been doing in the last few years. In terms of profitability, if you take a look at the returns that we received, now have, we never said that we would sustainably have the results in return to the equity of 19% to 21% that we are seeing in Chile, especially because with the higher level of capital that will be diluted. So the expectation that we have is to, after the capital raise, having a target between 13% and 14% return on a consolidated basis, return on tangible equity. That means a little bit more in Chile, a little bit less in Colombia, but on a consolidated basis, that's our target. If you take a look at the growth that we have, the normalization of the cost of credit that we have, the discipline on costs that we are having and project that through time, probably you're going to see an impact similar to what we were talking about. So that's at least it's our expectations, it's where we've been positioning the bank and investing in the last months.
spk01: That's very helpful. So just to confirm, at the consolidated level of both Chile and Colombia, target medium term, 13% to 14% return on central equity, and in Chile, higher, and in Colombia, lower than that.
spk02: Yes, we think that we can achieve the plan that we have for Colombia. is that we should be able to achieve our cost of equity in Colombia close to 36 months from now. From 18 months from now, probably we are at 60% of that target, converging fully in 30 to 36 months to our cost of equity. In Chile, we will operate a little bit higher than that.
spk00: Thank you very much. Sure.
spk03: Once again, to ask a question, please press star followed by the number one on your telephone keypad. We have no further audio questions in queue. I'd like to turn the call back over to the presenters.
spk02: Fantastic. Thank you so much for more one conference call. And if you have further questions, Claudia, Rodrigo, and I are always available for you. Take care. We'll see you next quarter.
spk03: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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