Itau CorpBanca

Good morning and welcome to the ISAC or BNCA Q4 2021 Financial Reserve Conference Call and Webcast. All lines have a place on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. Claudia Lave, Investor Relations, you may begin your conference.

Thank you. Good morning. Thank you for joining our conference call for our fourth 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 market economic 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 monetary model, in which we adjust for non-referring events and we apply monetary criteria to disclose our income statement. This managerial 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 are Mr. Gabriel Mora, CEO, and Mr. Rodrigo Coso, CFO. Mr. Mora will comment on the progress of our strategy and 2021 fourth quarter results. Afterward, 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 Gabriel.

Thank you, Claudia. Good morning, everyone. Thanks for joining us for today's conference. Today, we will present you the tangible progress we have been making in our transformation program, as well as the highlights for our fourth quarter results. As in our last few conference calls, I'll give you, in slide three, some concrete examples of the progress we have made this quarter, and along with the five pillars of our ongoing transformation. Let's start with the disruption and not be on our happy a lot. After the family and friends days, we are ready to launch Happy Cards by Itaú in March 2022. Just to recap, this credit card will have benefits in the Happy Cards form, no commissions, and will be fully digital. Moreover, if clients want a physical card, we will deliver it within one hour in Santiago, Mesa Torres and Arias. In addition, customers will get cashback for any type of purchase in Appian, online, in their paper apps, or in physical stores. It's a Visa-backed card, so it can be used anywhere around the world. New functionalities will be incorporated throughout the year as we progress towards a comprehensive digital product offering. It's worth also noting that the happy customer base has gone significantly since we closed our alliance. Our customer centricity is starting on slide five. Here we can see the first example of how our customer centric approach to a product has led to strong NPS improvement and resulted in market leading growth performance. We improved our digital offering and expanded it to more customers, while also developing new offerings focusing on customer loyalty. As a result, our NPS nearly tripled, and as growth in consumer credit cards recovered in the first quarter, we started growing much faster in the market again, with a 36% annualized growth rate in the first quarter. Over the last four years, our accumulated consumer portfolio growth has been three times that of the overall market. On slide six, we see a similar story for mortgages, where process decentralization and improvements in user-friendliness have greatly improved customer experience and enabled us to outgrow the market, which we have done at a 1.1 to 1 time over the last two years. On slide 7, we have an example of customer-centricity for businesses, from whom we also are creating digital products that are very user-friendly. A signal of our customer satisfaction with our offering is that for the second consecutive year, Global Finance Magazine has chosen Itaú Web Portal Connex as the best trade finance solution in Chile. As we implement our giant working model, we will accelerate the pace at which we roll out new digital solutions for businesses over the coming months. We now move to slide nine, and over the third pillar of our strategy, simple and digital. We have announced in the second quarter of 2021, during the fourth quarter of 2021, we have launched additional features for our website in line with our digital strategy, leveraging state-of-the-art technology used by leading companies. We have not only modernized the look and feel of our website, but also implemented a content manager that will enable us to update it much faster to keep it always fresh and add new functionality. On slide 10, we present some of the new features from our app, where we've rolled out new functionalities for managed investment, as well as keyword payment, added last November. The continued evolution of our app has enabled us to maintain the lead in the rankings The success of our app is a clear sign of the progress in our digital transformation as we work towards implementing our mobile-first service model. Moving on to slide 12, where we show our progress in implementing agile expertise. We started in March 2021 with the first three agile communities. As planned, by the end of 2021, we have 500 staff, internal and external, working in the agile model. Our plan for the next year is to triple that number of the staff working in agile model to 1,500 people distributed across an increasing number of communities, which will cover all of our main products and services lines. The implementation of this agile education has been very important in increasing the speed of product innovation and adaptation to customer preferences, which has been a key driver for improving our NPS and growth. Moving on to page 13. On the talent attraction fund, after the important changes we have made to our executive committee one year ago, we have recently attracted leading executives to key leadership positions. In wholesale, we have a new head of corporate banking solutions who's in charge of developing solutions and product innovation for all wholesalers, as well as a new head of corporate investment banking who will be focused on building our investment banking projects. In technology, we have a new head of agile who leads the development of our agile scale model, as well as a new divisional chief for IT officers who will work with the business in building new products and features to improve customer experience. Finally, we have hired a new head of market from Google, with extensive experience in digital marketing, who will help us accelerate our evolution in that area. On slide 15, we showed that we're moving closer to our goal of being the fastest-growing bank in Chile. On this chart, we see loan and current account growth rankings. In the fourth quarter of 2021, we were the fastest-growing bank in commercial loans and the second in mortgages and consumers, which translates to second overall with an analyzed growth rate of almost 20%. We are closing in on the podium in the growth rankings as well in total current accounts, having achieved the number three position in current accounts for businesses. Over the last three months, we have also been number one in both consumer installment loans and credit cards, which is consistent with our strategy of pursuing faster growth in retail. On slide 16, as in every quarter over two years now, I will talk about ESG as fundamental pillar of our strategy and culture. This time, I will give you an overview of our projects in ESG across the businesses, corporate behavior, accountability, and country development dimension. Let's start with business dimension. By the end year of 2021, 23% of our loan protocol in Chile was compliant with the UN Sustainable Development Goals definition. We have also participated as a joint book runner in two important bond issuances, a green bond from Saez, a large electric company in Chile, and a social bond with the Minister of Finance of Chile. We have also made progress in the corporate behavior dimension, significantly increasing both our customer and employee NPF in the context of our transformation programs. In addition, we managed to reduce our carbon footprint by 7% compared to 2020. This is due to our digital transformation, which allows customers to comfortably use our digital channels, and also due to our remote course working model, which has avoided thousands of employee trips, reducing emissions, and time-saving commuting. We also reduced our energy consumption by 17% and paper consumption by 31% relative to 2020 levels. On the accountability front, we continue to be recognized as components of several ESG initiatives which have affected our sustainability performance based on our public disclosure information. Thus, and once again, we are an index component of the Dijon Sustainability Index, being one of the eight banks that make up that list. In addition, for the second consecutive year, we are members of the S&P Global Sustainability Yearbook and continue to be part of the book Super Good. Also, in 2021, we were recognized for the fifth consecutive year as one of the most honorable companies by institutional investors. Also, for the transparency purposes, we have carried out a diligence of human rights, which allow us to identify risks and opportunities in our value creation chain into caps. To continue contributing to the development of the countries that we operate in, We have assessed more than 660 clients in social environmental risks, opened an account for more than 6,200 SMEs, and trained more than 1,200 students from vulnerable schools with workshops on critical thinking, financial education, teamwork, and use of technology. Finally, since 2010, we have granted more than 305,000 student loans to our young clients, of which over 185,000 are currently part of our customer base. Finally, I would like to highlight that we have renewed our commitment to the UN Global Pact, and our asset management has become an independent signature of the Principles to Responsible Investment in 2022-21, in line with our commitment to responsible investment. let's move on the next part of the presentation on july 17 where we present the financial highlights for the fourth quarter 2021 our consolidated net income was 82.4 billion trillion pesos consolidated rot was 13.9 percent and the return on baseball equity of our cheating operations was 17.8 percent in this part When we look at our full year, we reach a consolidated net income of 307 billion euros, which corresponds to a 15.7% return on tangible equity, while our return on tangible equity was 19.4%. Consolidated financial margin with clients grew 25.2% year-over-year. to the back of strong volume growth in Chile and a rising interest rate margin positively impacted by higher interest rates, while consolidated scheme income grew by 4.3% year-over-year. Non-interest net expenses increased 7.8% year-over-year as a result of higher inflation and adjustments to provisions for variable compensation. Year-over-year growth in income was much higher than in expenses, driving down the efficiency ratio 6.5% each point to 46.2%. Cost of credit was also down 72.4%, down on the high levels experienced in the fourth quarter of 2020. When we look at our credit portfolios, we grew at 9.8% in Chile and 7.6% in Colombia. in constant terms compared to December 2020, with mortgage and commercial loans in Chile and retail loans in Colombia as the biggest contributors. The average rate of financial margins with coins increased 64 basis points compared to the fourth quarter 2020 as a result of high interest rates and a higher capital base after the capitalization process. On the sliding team, we see how our loan portfolio mix evolved in the last 12 months in general. The overall portfolio grew by almost 10%, with mortgage loans growing by 18.9% and consumer lending growing by 8.9%, consistent with our strategy and guidance for 2021. The share of repayable loans in our portfolio increased by 205 basis points, From 4.8% to 36.8%. Since the merger in 2016, the share of our retail in our loan portfolio increased by 838 basis we still see more attractive growth returns in retail and need to be selective in growing wholesale to ensure shareholder value creation. Nevertheless, we are transforming our wholesale bank under new real leadership and expect to be able to accelerate growth as we capture more business opportunities that make sense from a value creation standpoint. Moving to slide 19. Financial margins with clients in Chile grew 31.9% year-over-year, driven by all three financial margin components, assets, liabilities, and capital. This margin was boosted by the capitalization completed in the stock market. Loans and deposits had strong positive contributors, both in terms of volumes and spreads. The chart on the right-hand side shows that our financial margin decline analyzed average rate, which rose by 50 basis points in the fourth quarter, is beginning to respond to rising interest rates, which have a positive direct impact on the margin, on demand deposits, and on cap. We expect this dynamic to continue as the tightening cycle progresses over the coming months. On slide 20, we see that our financial margins with the market was 45.6 billion pesos in the fourth quarter, about 16% higher than that of the fourth quarter of 2020. The 3% inflation observed in the fourth quarter had a strong positive impact, which was captured through an increased U.S. exposure relative to prior 21 months. as a result of financial margins with the market in the first quarter was nearly double of that of the third quarter of 2021. On July 21, we showed that our non-interest expenses increased by 11% compared to the same quarter in 2020, but only 3.3% on a full year basis, which corresponds to half the inflation rate in the period. as demonstrated in the chart on the bottom left of the page. Therefore, we again delivered on our long-standing commitment of growing expenses less than inflation. It's important to take into account that with the annual growth of 3.3% or half of the inflation rate, of course, in the context of nearly double-digit long growth, in an overall revenue growth of 15.6 percent with all revenue lines growing double digits as a result the bank's efficiency ratio improved significantly dropping to 46.3 percent in the fourth quarter here on slide 22 we can see our main credit risk indicators in chile cost of credit in the fourth quarter was 69 billion which corresponds to 1.4% of our average loan portfolio, partly explained by 19.5% human risk in additional provision as we continue to strengthen our balance sheet in a still growth scenario. On the other hand, cost of credit for the full year was significantly lower relative to 2020. NPLs continue to decline in the quarter as the good portfolio performance continues amid benign credit conditions as we have established additional provisions during 2021 for wholesale credits in sectors that we believe are still at risk of deterioration as a result of the lingering effect of the 2020 crisis. Let's move to slide 23. In Colombia, we are moving forward with the implementation of our turnaround plan. In that context, we continue to restructure our operations. In December, we took another step. on the turnaround plan in Colombia has efficiency as a very strong driver. As we can see in the fourth quarter, numbers for branches and headcount, as well as the falling non-interest expense relative to the third quarter. We also have declining NPLs and increasing NPL coverage, although to a lesser extent to that what we saw in Chile. We will be implementing our program plan in 2022, and we should start seeing some results over the next three quarters. We should see a higher pace of improvement in efficiency this year, while a capture of revenue-related opportunities will take a little longer. to have captured most of the impact of the program in 2023 as we progress towards our median term target of return on pay for equity between 10% and 12% in Cologne. Here on July 24, we show our liquidity position in that very stock with both LCR and SFR at historically high levels even since the end of 2020. On slide 25, we can see our fully loaded SET1 capital ratio increases 355 basis points quarter-on-quarter as we completed a $1 billion capitalization in this quarter to bolster capital ratios and support future growth. When including the impact of purchase of the additional 12.4% statement in South Colombia, which we completed last week, the pro forma Step 1 ratio reaches 9.3%. That level is right about where we had prior to the capitalization process that we expected to be as it has been completed. Also important to highlight is that last December, we started implementation of visual printing. The regulatory adjustments of the capital base will be applied progressively during a five-year term, without deductions in 2021. On the other hand, risk-weighted assets have changed from credit risk under Basel I to credit market and operational risks under Basel III. We are not only complying with current CNF-required capital, but also complying with our higher internal limits. Consistently with the bank's capital planning and prior statement, the board also confirmed last week their proposal of distributing the minimum 30% of 2021 net income as dividends. Now, if we move on to slide 26, we will recap how we fared in 2021 compared to the main performance metrics and objectives we announced at the beginning of last year. Long growth was stronger than expected. nearly double our initial forecast as it picked up momentum in the first quarter. Our retail business expanded rapidly as we bred resume growth in consumer loans, while maintaining a positive trend in mortgage loans and growing our commercial portfolio by 7%. The cost of credit surpluses positively, coming to 0.7%, while non-interest expenses do have to be placed on rates, in just over a fifth of the revenue growth rate of 3.3% compared to 15.6% in revenues. Overall, we can align or better every metric while reaching a return on digital equity of 15.7% on the consolidated basis. Now we talk about 2022. On July 27, we present our macroeconomic scenario. For Chile, some mobility tightening at the start of 2022 may contribute to weaker growth in the upcoming months. Beyond short-term effects, a tighter macro policy stance and still political uncertainty point to a GDP growth is going down to 2%. Still high inflationary pressures in the short-term and elevated medium-term expect inflation of 5.2% in 2022. In this context, we expect that the interest rate cycle to continue until the monetary policy rate reaches 8% by the end of this year. For Colombia, the two favorable external environments, no significant mobility restrictions and expansionary macro policies supported a swift GDP recovery last year. We foresee a GDP growth of 4% this year against 10.6% last year, supported by a more favorable carryover in strong terms of trade. Global supply constraints, high commodity price, widespread indexation in a weak Colombian business, points of persistent inflationary pressures in the short term. Inflation is likely to close 2022 at 5.5% against 5.6% last year. Finally, we expect interest rates to reach 7.5% by the end of 2022. There is considerable uncertainty to this scenario as a result of political conditions, both in Chile and in Colombia. The cycle of rapidly increasing interest rates to contain inflation and the developing of geopolitical situations. In this context, we will focus on what we can control and carry over our digital transformation, which we believe will ultimately determine our performance in the near future. On July 28, we present our guidance for 2022. The first point is that we expect our average rate of financial margin compliance to continue increasing as interest rates rise. As margin on demand deposits and capital increases interest rate, as they did on the fourth quarter. For the local credit portfolio, we expect high single-digit growth in a slower economy, consistent with our goal of being the fastest growth bank in Chile. As we have mentioned before, we expected the cost of credit of 2022 to be around our long-run expected rate, moving within the range of 0.7% to 1%. We will also maintain our focus on efficiency and expect to once more deliver the low inflation cost growth. On slide 29, which is our last slide, we recap our recent achievements. We successfully completed a $1 billion capital increase, as well as the acquisition of the additional state of Nicaragua, Colombia, as per the 2014 transaction agreements. More importantly, we delivered in every metric of our 2021 guidance, while reaching 15.7% consolidated return on employee equity. In 2022, we will build on from this progress while pursuing even more ambitious goals. Our first goal is to become the market leader in NPS and We mentioned those two together because, as we saw in the consumer and marketing examples in this presentation, customer satisfaction and growth come hand in hand. We will also accelerate our digital transformation in agile working model requirements. Take the advantage of the momentum and knowledge that we've used while fully leveraging the skills of the new talent that we have incorporated. We will finalize the implementation of our turnaround plan in Colombia and begin to see more substantial benefits. Last but not least, we will continue to push forward towards our target of 13-14% returned tangible equity on our new enlarged capital base delivering value creation for our shareholders. We conclude this part of the presentation. any questions that you might have.