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spk02: 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.
spk01: 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.
spk04: 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.
spk02: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Alassane Avramboura from BTG8 Actual. Please go ahead.
spk03: Hi, good morning, and thank you for the call. Two questions on my side. First, Gabriel, you mentioned the sensitivity of client margins to higher interest rates in Chile, which is positive. I was wondering if you can give us a sense of roughly how much do you expect client margins to expand for every 100 basis points of higher rates? And my second question, when you talk about getting closer to your median target of return on tangible equity, where do you expect that number to be roughly in 2022? Do you think that's going to be somewhere between 10% and 11% on a consolidated basis?
spk04: Thank you. Thank you for your questions. Regarding margin, in the same comment I had earlier on Facebook, There are some vulnerabilities along the way, but I can make some comments along those First, in financial margins, and you have all the numbers in the U.S. and also in the financial statements that we published in COVID, sensitivity that we have for interest rates. But more importantly, I think that on margins, what we have seen is that, remember, that we use the same model that Italmano-Demko has for... for publishing margins that I think it helps to understand transactions with clients, capital, and also markets. So on the own client side, what we are seeing is that the spreads are resilient. So we are seeing opportunities to maintain or in some cases because of changes in mix, increasing our financial margins with assets. In liabilities, and that takes most of the deposits and also especially the current account deposits that we have, they are highly sensitive to increases in interest rates because we have them at short term. So you're going to see financial margins with liabilities, an important increase this year on the margins that we have with clients. And the third one for the financial margins with clients is on our capital. Because we also have our capital in the shorter term, especially considering the capitalization we have, we expect margins with capital to have a considerable increase this year. The flip side to this discussion is the financial margins with the markets. especially on the banking book, of course, higher interest rates affect the margins of the banking book. However, with the high inflation, because of our exposures to inflation, that compensates some of the costs of the velocity of renewal of deposits in assets on the banking book. so you have the sensitivities on both the mean or not to market but what i can tell you is that we expect this year as interest rates rise to have a positive impact on financial margins and if you take a look at the drops that we have of the correlation with margins and interest rates you're going to see that that was the case on the past where interest rates went very low into this sector in margin for the things that I stated before. On some of these more equity, I think that we will continue to evolve on this discussion. Especially, of course, the capital increase that we have dilutes our return on tangible equity compared to last year. So in Chile, we have roughly 20% return on tangible equity. Of course, we're going to see a diminution of that. Even in terms of profitability, our expectation is that we can increase from the results that we had last year. and in colombia also we have high hopes for the restructuring that we have in particular the numbers and the impact that we have on expenses in colombia i think that we want to see similar magnitudes this year in colombia we will start to have a positive contribution in terms of the technical equity So the guidance that we have is for medium terms, for medium term, and on a consolidated basis, as I mentioned, something around 13% to 14%. That's the kind that we have, and it's very feasible. Incovert in Colombia to work hostile directly between 10% and 12%, also on the timeline that we mentioned. That's pretty much the guidance that we have.
spk03: Great. Thank you, Gabriel, for the call. Thank you.
spk00: Thank you, Alonzo.
spk02: Your next question comes from Jason Mullen from Scotiabank. Please go ahead.
spk00: Hello, everyone. Hi, Gabriel. My first question is related to the impact of inflation on your balance sheet and P&L. So if you could just help us understand how the bank made money with their inflation gap if you want to use the last quarter or the last year, and then talk about that, how that should evolve as inflation goes down. We'll start having prints where inflation is lower than it was, even if it's elevated and rates need to be higher. And my second question is related to the mortgage book in business. Really impressive growth there. If you can talk about that market with rates going up, how are you funding that, and are you taking gaps there, or are you trying to match the funding, or what portion do you hedge on the long-term mortgage book? 19% growth. I think you showed you're on here almost 19%. Thank you.
spk04: Sure. Hi, Jason. Thank you for your questions. Let's separate the discussion into what is the balance sheet and what are the hedges that we use on this. Basically, market is the main driver that we have for assets that are suffering taxation on inflation. We have all the assets, but I will tell you that perhaps the larger influence on assets that we have our own mortgages. On the flip side of liability, the long-term bonds that we issue, especially the bonds that had, We are indexed on inflation. So just to map it, we are very long on real interest rates. So we are indexed on inflation. Of course, we reduce our exposure to inflation using hedges. So we have a position on derivatives in which we go a little bit higher, a little bit lower. I think when you compare and contrast to some banks in Chile, I would say that we manage our exposure in inflation perhaps a little bit different. Some banks, in my view, they have a passive expense on inflation, meaning that they either their capital in the West, or they are giving the preference to this question. If you look at within the Chilean market, people came to use the West as a current to do business and do things. So locals, they are usually more comfortable in just having the West, and if the inflation is higher, it's higher, and if it's lower, it's lower. There are banks, on the other hand, that are a little bit more active on that. And I would say that we are one of them. We see inflation as one weak factor in our model, and we calculate limits that we have on Treasury to operate around that. So we are not passive. We are active on our exposure. And that generates benefits, and also sometimes the market is better than us, other times we are better than the market, but the flip side of having an active exposure against a passive exposure. What we did last year, if you take a look, we began 2021 with a higher exposure to EUF, as inflation went higher during the year, we decreased our exposure. And by the last quarter of the year, as we saw inflation getting higher, we increased our exposure. So, you have the numbers on the MDMA of how much that affected our financial market. So, one important point, that impact of inflation is not on financial margins required. That's only client business and it's not affected by market factors as interest rates for instance or either inflation. That is captured on financial margins with markets because then again we see that as a weak position of our balance sheet and within the limits that we have for managing our treasury exposure. We began the year this year with a higher exposure as inflation runs above our expectations. perhaps we will still be open more to inflation this year, and we will close down the position as we see it converging down. So then again, I think it's an active position. It helps us in a way to counteract the impacts that we have on banking of higher interest rates. And there are other effects, for instance, you remember that all the STICs lines that the central bank had, they were fixed on interest rates of 0.5%, if I'm not mistaken, as a liability for the bank, and we were on the shorter term. So as interest rates get higher, I have a benefit of this liability against the assets that we have. So that's pretty much how we manage inflation on the bank. I think that Earth and other banks, perhaps the banks that saw that they nominated, for instance, the capital in the U.S., they did better than us in inflation this year. And perhaps on a down cycle or more volatility on inflation, our asset management can extract more alpha on this position than them. It's true to be seen. We have to take a look at the markets. On mortgages, first, we always operate not with a mismatch. So we have a mismatch of interest rates. We have a mismatch of terms that we operate in the market. So as funding into special longer-term funding, 30 years, 25 years, became more scarce, we decreased our position on mortgages of that longer term. And what we are seeing on the market is that we are with more flexible rates than the market. So all the markets at the end of the day converge to floating rates for the shorter term. We did pretty much the same. So I wouldn't say our play on market is not based on a market view of inflation of interest rates. and we do not operate any mismatch on this market. But I think that the benefit that we had was understanding the cycle of the client being very active on the market because it took a look at our portfolio. We had that participation that was lower than our fair share uh for mortgages and now the the the for instance the long-term value that we have for this whole portfolio if i'm not mistaken something below 60 so we always operate in risk levels that are very comfortable in terms of client exposure as the dividend that they pay for the mortgage, the installment that they pay, the commitment of income at levels that we are comfortable. Of course, what we are seeing is more a financial burden as interest rates and inflation are is higher, financial burden for the client is a little bit higher than what we saw in 2020 and 2021, but consistent to what we saw in 2018, 2019. So we are comfortable with this strategy. We have the same mortgages. And then again, I think that the growth that we have is based on the digitalization, the effort that we put in NPS, and also the participation that we had that I think was the role of fair market share.
spk00: Thank you very much, Gabriel. A lot of insights there.
spk04: Thank you.
spk02: Your next question comes from Yuri Fernandez from JPMorgan. Please go ahead.
spk04: Hi, Gabriel. Thank you. I have a question regarding the tax rate. We have a lot of moving parts here. I guess Colombia, you have a higher tax rate in 2022. I guess I have some tax credits. So what do you expect, and if you can explain a little bit what happened this quarter that we had this tax reversion in Chile, that's the first one. And I have a second one regarding the shareholders' act, right, your follow-on, the capital increase. You have this excess liquidity. You already mentioned that your margin to market will be much better in 2022 as higher rates help on the deposit, help on this excess liquidity, right? But my question here is if most of this money is on floating rates, so we don't see a major OCI, mark-to-mark risk on this portfolio, or if the bank, for any ALM reason, you need to match this money with any i don't know fixed portfolio had so what should you expect for these money it's mostly floating and as you said um the working capital portion will move up as uh rates move up in chile or no part of this is that fixed rates or liquid inflation or any other kind of instrument that the the impact is less direct thank you very much Thank you so much for your question, Yuri. Perhaps complementing also the question that Jason had about inflation, there is a second order effect in Chile of higher inflation. uh that affects taxes and that's why i think that you see a volatile effective tax rate that we have in chile is that remember that you have monetary correction of your shareholder equity by inflation that generates a tax shield for you so within a month for instance that i have a very high inflation rate for instance in great revenues for all the reasons that we talked before. One effect that is also compounding to inflation here is that because of the fact sheet of the collection of inflation on our shareholder equity and the fact sheet that generates, you're going to have a lower effective tax rate. So that's also a question about the effect of inflation. Aside from the banking book, you also have, first and pretty much everything, an impact on the shareholders' equity. So as we see a high inflation on a quarter, you're going to see that effect on Another effect that we had last autumn, remember that we had in Colombia specifically, they announced a high tax rate for banks. And within the process of a higher tax rate, we have to revalue the deferred tax credits that we have in Colombia. So that generated an impact on deferred tax credits. That always happens in a bank when we have a future higher tax rate because we increase the consumption that we have in the process rates and the velocity. worry would you do that i think that's that's a very specific uh impact that we have in columbia as well that i don't see that repeating uh even in chile and columbia in the short term Your other question, Yuri, and I'm sorry because I had some connection issues and I didn't quite follow up everything that you asked, but let me try to rephrase that, and if I'm not correct, you can ask again. You were talking about the effects of the high interest rates that we are having in Chile on the banking book and also I think that we were talking about the effects on the market for the assets that we have and how we see that affecting margins on the future. So, of course, one factor we're going to see is that the banking book is the counterpart to all the other margins. So, we expect financial margins with clients to be higher than last year, for the reasons that we expected. In the same way that the banking book margin, I think that we expect it to be lower than we saw last year as it is the counter part for that and also probably clear in pricing in terms of oci we have an impact of around 100 billion pesos on the balance sheet from the high interest rate last year according to the benchmark that we did with all the banks i think that was better than what we saw in the industry some other banks were highly affected by it. And we do expect to go through margins throughout the next few years. The duration that we have is something around five years for dental storage. Having said that, there are other effects on The FCIC that we have that generates a better, a higher impact, a positive higher impact, that kind of net out the negative impacts that we have. But in terms of the dynamics that we are probably going to see on the banking book this year, and perhaps in 2023, is that we are going to see a better impact on financial margins with clients than we're going to see on the market. Not market as a whole market, specifically the thought that we have on the banking book. Remember that For instance, we are one of the largest players in effects in Chile. We have a large derivative business that's on the trading and market-making businesses that are going very well. But the banking booth, I think you're right. You're going to see a market. When composed everything, I'm still bullish in our ability to grow the bank as we grow and incorporate new assets and then that also generates opportunities for the banking book. But as it happens with all the banks that I know, when interest rates are higher, it's a more challenging environment for the banking book compared to when interest rates are lower. But things tend to map out in other models within the bank. That's why we are positive with margins as a whole. I don't know if that was your question. No, no. Yeah, yeah. My concern was, like, we saw in some other tiers, like, huge impact on OCI. And I think those things, they can be very challenging for banks. For us, you have, like, an understanding without the full picture. But your explanation was great, Gabriel. It helped a lot. Thank you.
spk05: Sure.
spk02: There are no further questions. Oh, we do have one more question for Yuri Fernandez from JPMorgan. Please go ahead.
spk04: Thank you. I'm back here on the line. Gabriel, if I may also ask an asset quality. We saw a very good new nickel formation this quarter, right, as you said in the presentation. And similar to other banks in Chile, you have been provisioning more in the new nickel formation. And you have this guidance for 2022 that is very good. And my question is, do you see the company reducing the additional provisions you built over those years? Or do you think, like, with those 0.7%, 1% cost of risk that's the normal kind of normal cost of risk level and you will still keep the additional provisions on your balance sheet. That's the first one I have. And I have a second one, more strategic, like about the company and your view on share price. I guess 2022 was a much better, 2021 was a much better year for the company as a whole. Results are much better. And still we see some investors still a bit disappointed with, oh, they missed in the past, they didn't deliver the strategy, but you are delivering now. So my question is, what do you think is going to be the trigger for the company, for the shareholders to recover some confidence on results? Because results are there, and in my view, at least, the share is not reflecting the full value of the franchise. So my question is, what's going to be the trigger, in your view, for some minority shareholders to recover the confidence that the company is really discounted? Thank you. as you mentioned we took the opportunity of doing more additional provisioning in our balance sheets there is a part of our portfolio that is always more I always do to people, that our portfolio needs that we have, it's a little bit different from what you see in the market, that we are more heavily concentrated on commercial, especially large cooperating projects, right? So the NPL measurement, I think that good prediction for the mortgage portfolio for the consumer portfolio but on the commercial portfolio especially large corporates I mean it generates a volatility I am not like to take a look at all the metrics that you have on CMS, what is the substandard portfolio, what is the leading portfolio having different ratings that you can classify your portfolio and take a look at coverage that you have for different parts of the portfolio and also that's publicly available information different banks to use, I think that we are very comfortable with the level of provision and coverage that we have for those portfolios. But we did see, because one specific case, a better performance on the portfolio as a whole. I always like to look at different components. So, especially on consumer and mortgages, I still see on the fourth quarter better NPLs than we've seen before. Having said that, for this year, I think that we are going to start to see things converging back to what happened prior to 2019, prior to what was the so-called rest to Chile. I think that's a more consistent long-term view in terms of MPLs and cost of credit. Not in our case. I think that in our case, it is 0.7 to 1%. that we mentioned, but for the market as a whole, I think that number makes sense. On the commercial side, and we need more provisions, additional provisions for the commercial side, it's less driven by NPLs and more driven based on the guarantees that we have for different projects or assets that we have. So we are always evaluating market rates what are the values that we have for the guarantees for large corporates. So based on our models, I think it makes sense, even the volatility for the market, higher interest rates, it makes more sense for us in terms of the loss given that we use for corporate to increase additional provisions. And I think that we are comfortable at this moment with everything that we have. But throughout time, what we might see or probably we will see is us using those provisions for the changes that we have for the, I mean, at the end of the day, we do additional provisions based on our future expanding and not doing yield management. We do it based on our future expectations on stress at most. It enables us to have lower volatility on our balance sheet and be more prepared to the concentrations that are portfolio has, so on and so forth. So probably this year, we are going to see the cost of credit with the levels that we mentioned. We might use some additional provisions, assign them to specific cases. And we are going to see a dynamic that is a little bit different from what we saw before. One quarter last year, if I'm not mistaken, we had the cost of credit around 0.2%. which is very low compared to the expectations we had. So this year, then again, mean conversion. I don't think that we'll converge fully because there is still positive lingering effect on liquidity in income within the industry. Employment is picking up. But probably in 2023, I think that we're going to see kind of business as usual situation in cost of credit. And the share price that you mentioned, I think, I mean, all the stories that we have and all the challenges that we have with the credit portfolio, with the destruction in Colombia, meant that we have some volatility results since 2016. And then, for sure, as you mentioned, confidence at some level uh i think that what we have to do is deliver the results that we are delivering consistently throughout time uh and people will perceive the value i mean at the end of the day there are things that we control and things that we do not control what we can control is the transformation that we're doing and the results that we are getting i think that investors their decisions considering that. Having said that, and being a master manager for many years in myself, I think that people are taking a look at the numbers, taking notes, seeing the consistent and volatility. And at some point, I think they recognize that I see the bank largely discount among these peers in Chile, especially considering the results in the capital base that we now have. Now I think that we have a bank that is to begin business as usual. I think that as we deliver what we have promised, and if you take a look at the guidance that we have, what we said we are going to do, and what we have delivered in the last 18 months, I think that we are pretty consistent. I think that we need to continue to do this. No, no, that's great, Gabriel, and I agree with you. Thank you very much. Thank you.
spk02: There are no further questions over the phone at this time. I will turn the call back over to Claudia for the webcast question. Claudia, please go ahead.
spk01: Thank you, Julie. It's Gabriel. We have one question from the console coming from Daniel Mora from Craig's call. He first sent you for the presentation, and then he asked, What is the ROE and ROTU guidance for 2022 considering the outlook for this year and new capital? Can you provide it by country? What would be the main drivers for this expectation?
spk04: As I mentioned, we do not yet have will not be short-term guidance in terms of the results or returns, because then again, We have our budget. We have a clear view of what we are doing in the short term or medium term. But what we can commit, and we are very comfortable in the way that we are advancing towards that goal, is to have a return on tangible equity on the consolidated basis between 13% and 14%. and Colombia converging to its cost of equity of 10% and 12% in the next couple of years. That's what we are working for. I think, again, that the numbers that we have shown are consistent with that direction. I think that the main drivers for that convergence We are explicitly within the guidance that we have. We expect margins to continue to go up. We expect cost of credit to be behaved within the medium to long-term view that we have for our cost of credit portfolio and the additional provisions that we have enable us to have a better volatility of that number. of the efficiency that we have, that we've been able to deliver lower costs than inflation for the last few years, and the growth that we are seeing on our portfolio, and customer satisfaction that I think gives sustainability to this. Those are the main drivers. That's where we are delivering. And I think that if we continue to do this, and that's what our numbers show us, is that we are able to do this convergence. I don't think it's easy. I think the market is very competitive. Nevertheless, as I mentioned to you, when we first started talking of growing in Chile, I remember people saying, oh, but the market is very consolidated. The market is very efficient on retail. It's different from the other countries. Okay, since 2016, we grew three times the margins. I remember people saying, oh, it's very hard to change the mix of the bank. We changed the mix to Australia by 8.5%. Almost. It's the largest change in mix in a bank in Chile. So we are doing what we said that we are going to do. It's true that since 2016, especially on the credit part of the portfolio and in Colombia, we have generated some frustration around the expectations that we have and the market has. But if you can look at the drivers that we have, the plan that we have, how the market has perceived the client, how it perceives the digital offering that we're putting forth, these people that we're putting forth, I think that we have all the necessary levers to continue to grow and to achieve this. I think that the capitalization takes out one discussion that we always had of how we are going to capitalize the bank and the capital that the bank has. compared to its peers. I think that we might be able to increase the rating that the bank has with the high capital ratio that might generate a positive impact on cost of debt and living service for us. So I think that everything is going according to the plan. But then again, as I mentioned before, one quarter, we have to deliver another one, we have to deliver another one. But when you take a look at the price to book, take a look at how banks are trading, take a look at the transaction that was recently announced in Chile, prices don't make sense for me. But that's up to investors to decide.
spk02: Thank you. There are no further questions for today. I will turn the call back over to the presenters for closing remarks.
spk04: Fantastic. Thank you so much for another conference call. As I mentioned, we are going to do this one quarter at a time. I think that everyone in the bank is very excited about what is happening, the talents that we are bringing in, the things that we are delivering, and I think that we are going to see this on the next quarter as well. Take care, everyone.
spk02: This concludes today's conference call. Even I'll disconnect. Thank you.
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