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spk01: Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the IPAO Corp Banca first quarter 2022 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 time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Claudia LeBay, Head of Investor Relations. You may begin.
spk02: Thank you. Good morning. Thank you for joining our conference call for our first quarter 2022. I would like to remind you that our remarks may include forward-looking information and our actual results could differ materially from what is discussed in this presentation. I would also like to draw your attention to the financial information included in this management discussion and analysis presentation, which is based in our managerial model that we adjust for non-recurring events and we apply managerial criteria to disclose our income statement. Please remind us beginning the first quarter of 2019, we are disclosing our income statement in the same manner as we creating additional P&L reclassification. 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 how we under these different perspectives. Please refer to pages 11 to 14 of our report for further details. Now I will pass the floor to Gabriel. He will continue with the presentation.
spk03: Thank you very much, Claudia. Good morning, everyone. Thank you for joining us on this first quarter of 2022 conference call. Today we will be teaching on our progress present the highlights of our first popular results. Starting on slide four, as a result of the implementation of customer centric initiatives, we have reached the highest levels of NPS for the bank, moving from 20% in June 2020 to 68% in March 2022, a 48 percentage points increase. Both our wholesale and retail segments have had similarly large As a result of our improved digital offering for our wholesale customers, we have reached the number one position for medium-sized companies in Chile and the second place for corporate clients according to the latest safety test survey by Ipsos. We remain committed to providing a distinctive customer experience, pursuing NPS levels comparable to those of the leading players of the industry. not only banking, but of any industry. On slide six, we show our progress in our mobile first strategy, through which we have achieved a 30% increase in app users in the last 12 months, and a 140% increase in transactions in the same period. This has been achieved through continuously enhancing with new features and improving customer experience. While we have decided to center our strategy in our app, we have also rolled out new features for our website. Leveraging state-of-the-art technology used by leading companies, we have not only modernized the look and feel of our website, but have also implemented a content manager that will enable us to operate it much faster, to keep it always fresh and add new functionality for our clients. Moving on to slide eight, we would like to provide an update on our digital branches, one of the key aspects of our service model. I would like to remind you that the main strengths of our digital branches model, which provides more convenience to customers through extended hours, more personalized service, and exclusive benefits. As a result, digital branches have a higher NPS than physical branches. Digital branches are also more efficient. Our experience during the past few years has shown us that the cost of serving clients is 50% lower in this model compared to a physical branch. Therefore, we are rapidly scaling our digital branch model, expecting them to meet with 25% of our customers in digital branches, up from 12% in December 2021. On slide 9, we show that in addition to provide simple and digital channels, we are also engaging customers through social media. Our Vision Deliveries YouTube Livestream is now entering its third year, with Steve Chin, the co-founder of YouTube, as our guest speaker. With our social media presence, we are strengthening our position as a modern and innovative bank. creating content that interests our current and potential customers in different platforms such as LinkedIn, Instagram, YouTube, and TikTok. As a result, we now rank first or second among Chilean banks in number of followers in each of the four platforms. On slide 11, we are happy to be recognized by UTP as the second best company to work for in Chile, which shows that we are in a leading position in the competition for talent in Chile. On the last few quarters, we have managed to attract top talent at all levels, beginning with the first and second line executives, as I mentioned in our last call, and extending to less senior roles. we have now attracted fresh talent to about 30% of our positions reporting to our executive committee members, bringing the required skills and energy to accelerate our transformation into being the fastest growing banking shield. On slide 13, we show that we've been moving closer to this goal of becoming the fastest growing banking shield. On this slide, we see growth ratings on a 12-month basis as of March 2022. During this period, we were the fastest-growing bank in mortgages and consumer installment loans, and the second in factoring and credit cards. We have also achieved the number three position in current account for businesses and have been improving our position in the ranking for commercial loans, achieving the fourth position over the last 12 months. On the ESG front on July 14, we have taken an important step by representing that S&P do an ESG evaluation for the bank, which was announced yesterday by S&P. This step demonstrates our long-term commitment to the ESG agenda as well to transparency regarding our progress. We were the first bank in Latin America to disclose our ESG evaluation by S&P, joining a group of over 125 companies globally, most of them large caps. Our score, 70 over 100, was above the global average and the average for financial institutions, as well as significantly above the Latin average. While these results reflect positives on our progress so far, we understand how important it is to advance even more rapidly in the environmental, social, and governance agenda, and we are commuting to doing so. Now, moving forward to slide 15, let's talk about the bank's financial performance in the first three months of 2022. Our consolidated net income reached 110.8 billion Chilean pesos, growing 16.5% year over year. Net income in Chile grew even more, by 33.2% to 111.9 billion pesos, the highest figure in our history. Consolidated return on tangible equity was 16.9%, while return on tangible equity in Chile reached 20.9% in this quarter. Both of those figures incorporate the impact of a $1 billion capital increase finalized last December. Consolidated financial margin decline grew 27%. boosted by higher volumes, especially on credit and shield, as well as higher interest rates, which positively impacted margins in liabilities and capital. Consolidated speed in income grew by 15.5% due to higher results in insurance, brokerage, and current account services and overdraft fees, especially in shield. Consolidated non-interest expenses decreased 1.4% year-over-year as a result of efficiency initiatives in line with the digital transformation in our strategy in Colombia, resulting in a consolidated efficiency ratio of 49%. Consolidated cost of credit increased by 10.7% year-over-year. Broadly not in line with consolidated credit portfolio growth on a comparable basis. In constant currency, our credit portfolio grew by 8.9% in Chile and 4.4% in Colombia, with retail loans in Chile and consumer loans in Colombia as the biggest contributors. These first quarter results represent a strong start to the year, with consolidated returns and equity above our target of 13%, 14%. While recognizing that our bottom line has been positively impacted by the current macroeconomic environment, we see our growth in credit volumes and commissions, as well as a declining expense, as a clearly positive operating trend. On slide 16, we see how our loan portfolio mix evolved in the last quarter and two. The overall portfolio grew by almost 9% year-over-year, with mortgage loans growing by 19.1% and consumer lending going by 17.5%, consistent with our strategy and in line with our guidance of high single-digit loan growth for 2022. The share of retail loans in our portfolio increased by 317 basis points, from 35.2 to 38.3 year over year. Since the merger in 2016, the share of our retail in our loan portfolio increased by almost 10%. We have been persistent in our strategy of pursuing faster-than-market growth in retail, knowing all along that we will take time for our share in retail loans in our portfolio to change significantly, and we believe we have made meaningful progress. We still see more attractive returns for growing retail, so we expect our share of retail of our portfolio to continue to expand. Nevertheless, we are confident that our wholesale banking strategy and leadership team will enable us to grow in wholesale with attractive returns. Moving to slide 17. we see that our financial margins with clients grew by 30.8% year-over-year, while remaining nearly stable on absolute value in analyzed average rate terms relative to the last quarter. The slight 2.4% decline is explained by lower number of calendar days of the first quarter, as well as by the seasonal positive effect of the sales season loans that happened in the first quarter of last year. On slide 18, we see that our financial margins with the market was 33 billion pesos in the first quarter, in line with last year's average of 33.6 billion. Compared to the fourth quarter, financial margins with the market was 27% lower, largely explained by the 20% lower inflation valuation in the period. On slide 19, we see that our total commissions and fees grew by 17.3% year-over-year, with double-digit growth in all lines. The graph on the right-hand side of the page shows fee growth in some key business lines. Year-over-year growth in insurance brokerage was 18%. In cash management, it was 27.5%. And in credit cards, it was 47%, which gives you some color about the bank's commercial performance. Here on slide 20, we can see our main credit risk indicators. In the first quarter, our cost of credit was $31.3 billion. which corresponds to 0.6% of our average loan portfolio, partly explained by the $6.6 billion in additional provisions. NPLs in NPL coverage were stable. The 0.6% cost of credit was in line with the first quarter of 2021 and with the full year of 2021, as well as slightly below our guidance of 0.7% to 1% for 2022. On slide 21, we show non-interest expenses for the quarter, which have remained very much under control, decreasing 10.5% quarter over quarter as a result of decreasing personal expenses, mainly due to higher provision for bonuses established in the previous quarter. In the last two years, we have reduced the bank's total headcount by 7.5%, while increasing technology and digital business headcount by 53.4%. That is in line with our strategy of investing in technology and digital, while capturing efficiency from physical footprint optimization. Consistently with our strategy in long-term commitment to efficiency, significantly below inflation over the last 12 months, and our efficiency ratio in Chile has improved to 43.4%. Let's move to July 22, where we can see that in Colombia, we are falling through with our strategy of improving efficiency while prudently managing risk. Expenses declined in nominal terms by 8% year-over-year and 11.2% relative to the last quarter. In the first quarter, we executed an important phase of our footprint optimization program, ending the quarter with 18 keyword branches compared to the first prior quarter, and totaling a 21% decrease in our physical footprint year-over-year. That count has decreased 14% year-over-year. Credit quality has continued to improve in the fourth quarter, with NPL ratio decline from 3.21% in the fourth quarter to 2.92% in the last quarter. In addition, NPL corporate ratio continued to rise in the quarter to 173%. We will continue with the implementation of the transformation plan in Colombia, which has efficiency as a very strong driver. On July 23, we report our progress in the capital fund, which along with the improvements in profitability and other factors, has led to a net rate of our S&D rating to triple B+. Our settlement ratio increased 40 basis points in the first quarter, totaling 291 basis points relative to the first quarter of 2021. as a result of the $1 billion capital increase and improvement in profitability. It is worth noting that we completed the acquisition of the additional space in Colombia during the first quarter, so the impact of that transaction is incorporated in the March 22 figures as well as in the December 22 pro forma figures that we are presenting for comparability purposes. The rating upgrade signals the success of our cap and increase process, which happened according to the plan and expectation we communicated to all stakeholders, despite the significant market turbulence of the peak. On July 24, we recapped the key messages from this presentation. We had a strong start of the year with a consolidated return on payable equity, top and 21.9% in terms of electric chill, all considering our newly increased capital base. We have made progress in efficiency in Colombia, reducing our fiscal footprint by 21% and our headcount by 14% year over year. We are in the progress of implementing the transformation there, and we are beginning to see tangible signs of growth. sustainability, our progress has been recognized not only in the financial front with the rating upgrade, but also in the ESG front with a positive first evaluation. Finally, we are focused on proactively managing the potential effects of the current cycle of high inflation and high interest rates on our businesses going forward. While this cycle has positively impacted the earnings of the banking industry, we understand it might generate pressure on credit growth, cost of credit, and expenses going forward. So we are analyzing scenarios and taking the necessary measures to position our business for the likely next stages of the cycle. While managing the cycle is important, what will ultimately determine the success is our ability to deliver on our strategy and become the fastest-growing bank in Chile, as well as turn around our performance in Colombia. That remains our main focus, and we will continue to push forward and keep you posted on our progress. This is pretty much the presentation that we have for you today, and we will gladly take any questions that you might have.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Juan Recald with Scotiabank. Your line is open.
spk00: Hi, good morning. Thank you for taking my question. The first question is related to the regulatory front. There were some headlines about a law proposal to raise debts under 2.5 million pesos in Chile, and supposedly that was going to be discussed today. So the question is, do you have any comments on the potential impact and how likely this is to become a law in Chile? The second question is related to Colombia and the cost efficiency initiatives. We were wondering whether there is more room for cost cuts there and how should we think about the non-interest expenses in Colombia going forward? Thank you.
spk03: Sure. Thank you so much for your questions. I mean, your first question about regulatory environment, and that goes for Chile and many other countries in Latin America and the world. Because of the pandemic and its effects on the economy, we have seen regulators, especially through Congress, being very active in proposals for changing regulations, not only banking, but affecting other industries. I think that so far we have seen many kinds of regulations coming forward as proposals, but I think the discussion process that the government has had so far, the different committees that analyze this, with Congress were very efficient in making sure that any adverse effects are considered in their discussion process. So I think that that regulations will change over a long time. We are seeing open banking discussions that are very much in some markets, such as Brazil, and we are starting to see that gain traction here in Chile. again for specific regulations of bringing that we do not have any specific comment about this but then again i think that congress uh was always very uh democratic and mature in terms of understanding the impact of those proposals within the system credit growth ability for the banking industry to continue to serve its purpose of helping the country to grow So I'm confident that they will still do this. In Colombia, about cost and efficiency, I think it has to do with the position that we have in retail, right? When we take a look at the bank in Colombia, I can divide our business in three different main groups. The first one is our treasury business, which traditionally we had a profitability much higher than our cost of equity. Our wholesale business, we've been around our cost of equity. In our retail business, we are losing money. So in terms of our retail business, what we wanted to do is to adjust the capability and the assets that we have for the opportunities that we see on the market, especially now, because marginal growth will be much more digital than with the physical footprint that we have, that was clearly oversized for the bank that we have, and also for the possibilities of growth that we see on the future, then again, considering all the possibilities and what we did in digital both in Brazil and in Chile. So I think that there is still room for improvement in inefficiency in Colombia. There are still opportunities in terms of costs in all the effects, even from physical branches and what that entails in terms of commercial model, operational model, overhead. I think there are opportunities there. But you're right that at certain points, there will be a shift in strategy. And as you know, efficiency ratio is based on our ability to cut costs, but as well as grow your revenues. So from the moment that we adjust the expense base that we have in Colombia, we already have, but we pursue with more strength, revenue opportunities in Colombia, first in the wholesale business, and then advance our .
spk00: Thank you, Gabriel, for the comments. One follow up, if I may. Are there any updates related to the JV with Rappi in Chile and how that process is moving forward?
spk03: We made a wait list for Rappi and we have tens of thousands of clients already lined up in the waiting list for Rappi. the launch we are on a soft launch approach so we are already issuing uh credit cards we did a benchmark with the major uh digital players in latin america especially in brazil to take a look at uh the onboarding process that we had uh in terms of information that the client wanted to put how much time the client waits for the credit cards, how much time it takes for the client to do the application process, and we pretty much end up in the first style in terms of performance. So we are pretty confident with the offering that we have. As I mentioned, we were kindly surprised by the wait list that the soft opening approach of issuing first on the wait list that we have, and then we are going to market the spring from next month.
spk00: Okay, perfect. Thank you very much for the comments, Javier.
spk01: Sure. Again, please press star one if you'd like to ask a question. Our next question is from Yuri with JP Morgan. Your line is open.
spk03: Hi, Gabriel, and congratulations on the good results. I have two questions. The first one regarding margins. How do you see the outlook for margins in Chile, like demand deposits, evolution, basically trying to understand this high inflation that seems to be good for margins, how you see this in sustainable or not, like, I don't know, your overall view in both assets and liability side. And I have a second question regarding asset quality for Mortavis, sorry. How do you see asset quality moving in a higher inflation environment? Do you see Mortavis NFLs moving up? Is this a point of concern for you or most of your clients' salaries are also linked to inflation? What is your view on inflation and asset quality regarding the Mortavis product in Chile? Thank you. Thank you for your question, Yuri. First of all, on margins, I think that you mentioned inflation, which I do think is an important component on this discussion. Remember that we and other banks in Chile, we generate more asset index inflation than liabilities. Most, if not all, the generated indexes to inflation. Some commercial credits are indexed to inflation. And on the liability side, pretty much only the long-term bonds, they are indexed to inflation. So our physical balance sheet is pretty much a loan on inflation. Of course, we manage this extra exposure through derivatives, but given the sheer size of the balance sheets, it happens as well as the banking book. The banking book naturally is more long in interest rates because the way that the market works, right, and the size of the balance sheets. So when we have a situation of higher interest rates, higher nominal interest rates in even higher inflation, that generates an important impact and positive impact on margins, especially in a market that is as indexed as it is in Chile. I think that at some point, we are going to see inflation going down as the monetary cycle continues to push forward. In that case, with inflation going down and nominal rates still higher, you're going to see a negative impact on financial margins with markets. The flip side to that is that you are going to continue to see a positive impact on financial margins with liability and capital. That's the case with us, even more by more volume from the clients and also for more interest rates. If you take a look at the numbers of financial margins with liabilities, you see great increase compared to last year. Having said that, when I take a look at the markets going forward, I think that financial margin with markets will suffer a little more, especially when the banking book is very managed interest rate exposure and also inflation. spreads, financial margins with clients specifically, on the asset side, we don't see much pressure right now. So we were able to grow in the way that you saw before, pretty much maintaining the spreads that we have. So we don't see much pressure on that side. I think that's natural on a process of higher interest rates as well. uh regarding the asset quality i will separate the discussion into the first one uh i think that we have a positive surprise in terms of cost of credit increased, as you saw, additional provisions because of it. We do see a positive credit cycle due to all the excess income and savings that the clients had from the pension withdrawals that we saw in Chile and also through government programs. As we mentioned, it's inclusive on our guidance for cost of credit. We do see a new conversion in terms of asset quality to what we saw in 2018 and 2019. As we mentioned before, we see that starting at the second semester probably, but markets were more resilient than we thought on the first quarter. Then again, I don't think it changes our idea that we should see a convergence to NPLs prior to 2019, perhaps 2018. I think it's a good benchmark. That's why we constituted all the additional provisions last year and continue to constitute this year, because we do see this new conversion in that point. It will make sense to use these provisions as they were constituted for the cycle that we have right now. In terms of inflation, I think it on disposable income, especially when we take a look at some credits, for instance, indexed on inflation. As we mentioned, mortgages are indexed to inflation. So either by higher rates or by higher inflation, that generates an impact on customers. i think that differently from brazil from instance that i know that you cover uh income especially on the segments that we operate in chile they also have their income more indexed to inflation and uh with corrections more on the short term so maybe three to six months, perhaps you're going to see some inflation on the wage size of that discussion. So net out something. But then again, I think it's something that our also points to the direction that we discussed about converting to NPL's ratios prior to those that we saw during the pandemic. I think it makes sense. And the macroeconomic side that we are seeing in which the excess of income somehow goes through the system, higher interest rates, higher inflation, they point to that direction. I don't have information so far to make any prediction that that will be higher than what we saw prior to the pandemic. We're going to cross that bridge when we get there, but we do see a convergence in the next few months. That's super clear. Just to follow up on margins, Gabriel. So, basically, the message is the following. Like, margins with clients, because of the working capital, the spread on assets, like, they should continue growing healthy, like, those 20%, 30%, like, closer to, like, very high sound over a year. But on the other hand, max income may keep decreasing, right? Like, maybe going to zero, not sure if this can get to a negative point eventually. But basically, the message is that client margins will compensate a weaker market margin because the way you recognize your assets and liability management, right? That's kind of the message. I think the mechanism is exactly what you mentioned. If going forward marginally, they will compensate each other of it. They're going to be more positive or more negative. I think it's back dependent to what? Into how long interest rates will remain very high in Chile. We are seeing a cycle of high inflation in high nominal rates. If you take a look at the markets, the markets are implying that you're going to see interest rates going down at the end of the year and throughout next year. So if that's the scenario, you might see it easing out or maybe positive. But if interest rates, we are going to see them higher for a longer time, in real interest rates at exceptionally higher than historical levels, then perhaps it's a negative match. But then again, we don't have any projections regarding this. I'm only explaining the mechanisms, so we don't have a specific guidance or expectations. We need to incorporate more information as we go along. No, that's perfect. And congratulations again, Gabriel. Thank you.
spk01: Sure. Thank you. We have no further questions over the phone.
spk02: We have two questions, Gabriel, on the Q&A docs, both coming from Craig of Capital. Daniel Mora asks, even though the higher the higher inflation is positive for margins and the nii how does it impact the loan demand and the goal of growing above the industry level also considering the current outlook of the interest rates and the second question is also from danielle he asked what is behind the increase of the npr ratio of the consumer segment in chile The increase is a sign that the benefits provided to households are fading and we should return to a more normalized figure? Those are the questions.
spk03: Fantastic. I think some of the main points I have discussed with the questions from Yuri, but going back, in terms of growth, I mean, for sure, higher inflation and lower growth that are valid expectations for the second semester and for the next year. I think we're doing that overall growth. But then again, our main concern in the bank is taking share. We have so many opportunities in client front, in digital front, that if the market grows less, I think there is still room for us to gain share and to explore pockets of profitability and growth based on how the industry is organizing the opportunities that we see. But you're right, if we are only taking a look at macroeconomic environments, I think it's going to be more restricted either by the credit risk or by growth of debt. On the NPLs that you mentioned, and I also answered that to Rudy, we are going to see pressure in NPLs. I'm sure of that. I don't think that it's... the expectations of maintaining the level of NPL, especially on the consumer side, right? On the corporates, I think it's another discussion incorporating forward information much more rapidly than on the consumer market. But we are going to see MPLs going higher. I think that MPLs were artificially low on the last few quarters, especially then again for all the excess income that people had in Chile from the withdrawals and government support. I think that will end in some time. And we're going to see a new conversion. And that's pretty much why we did all the additional provisions in the past because we are pretty much sure that through this convergence process, we are going to use them in order to smooth the cycle of the new reversion. Of course, I think that we have two opposing forces here in this convergence process. One of them is the higher inflation, higher interest rates. pretty much the job market, it seems okay. But then again, I think that's a negative impact that we're going to see on cost of credit within this conversion. And the other side is that the markets are still very liquid. The amount of excess income that the markets received was quite massive. in terms of GDP and disposable income for the families has created an impact in inflation, as we saw, but also in their ability to serve their debts. So I think that two opposing forces going through a mean reversion process as well so on the next few quarters i think that we're going to have a more complete view i think there are two main moving parts on on this discussion that need more information about the size of the monetary policy impact that we are seeing the the timing of that the length uh of it but I'm pretty sure that NPLs will be going higher on the next few quarters.
spk01: We have no further questions.
spk03: Oh, fantastic. Well, thank you so much for your questions and for attending our conference call. As I mentioned, we do see a very positive evolution of the bank in commercial, operational, and client funds. And we'll be happy to share with you the evolution on the next part. Take care, everyone.
spk01: Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating. You may now disconnect.
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