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spk00: Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the ETAO-CORBANCA fourth quarter 2022 financial results conference call. Today's conference is being recorded and 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And I will now turn the conference over to Rodrigo Couto, Chief Financial Officer. You may begin.
spk02: Good morning. Thank you for joining your conference call for the fourth quarter of 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 on our managerial model, in which we adjust for now-recurring events and apply managerial criteria to disclose our income statements. We've been reminded that since the first quarter of 2019, we are presenting our income statement in the same manner as we do in surveys. This managerial financial model reflects how we measure, analyze, and discuss financial results by segregating, one, commercial performance, two, financial risk management, three, credit risk management, and four, cost efficiency. We believe that this form of presenting our results will give you a clearer and better view of how our performance from different perspectives. Please refer to pages 9 to 12 of our MD&A reports for further analysis. Now, Mr. Gabriel Moura, our CEO, will continue with the presentation.
spk01: Thank you, Rodrigo. Good morning, everyone. Thank you for joining us for this fourth quarter 2022 conference call. Today, we will update you on our progress in implementing our strategy, as well as present the highlights of our fourth quarter results. Starting on slide 3, we are introducing our Itaú Advisors model to support our growth ambitions in the investment business. Our Itaú Advisors locations will provide a setting where we can work with our customers to understand their profile and create personalized financial plans that will help them reach their goals with appropriate levels of risk. On slide four, we see that we have strengthened our leadership position in customer satisfaction for SMEs by improving our NPS by 12 percentage points and increasing the business to our competitors according to the most recent service test service poll by Ipsos. Our NPS for SMEs is now 20 percentage points better than the industry average. On the next page, number five, we see that we were considered by SMEs as the best bank in all dimensions of the survey test poll. This clearly demonstrates that we have a competitive advantage in terms of customer experience in this segment, and our SME business is thriving as a result. We will continue moving forward with the same guiding philosophy because client orientation has been ingrained in our culture as seen by the positive progressions in all areas. Moving on to slide 6, we show that we have become the biggest player in foreign exchange loans in Chile. One key element of our trade finance value proposition is our trade finance portal, which has been chosen by Global Finance Magazine as the best trade finance solution for the third consecutive year. The fact that we were also selected by the best chain finance application for 2022 by the same publication confirms that we are on the right track when it comes to creating products and services that make life simpler for our clients. On slide seven, we present the progress we have made in the investment banking lately. In 2022, we reached the second position in Latin America in SG transactions and the third in liability management. We also reached fourth position in local debt capital markets. Investment banking is a key area of focus for us as we continue to develop a regional franchise together with Itaú Unibanco, leveraging our combined presence in Latin America, which will enable us to continue rising on the lead tables. Moving on to slide eight, we highlight our progress in cash management. Over the last 12 months, we've seen a growth of 20.2% in supplier payments and 18.1% in transactional cash. That increase in transactions resulted from our efforts to digitize our value proposition, introduce transactional solutions, and closer operational integration with key wholesale clients. On the next page, on page nine, we demonstrate how we are positioning ourselves as digital leaders through the content we create on multiple platforms. Following the visits of Uri Levine and Steve Wozniak, our Vision de Lideres YouTube livestream is still going strong and now features a conversation with Martina Navratilova, Wimbledon's single champion with the most victories. By creating content for a variety of platforms that is appealing to both our current and potential customers, we are boosting our reputation as an innovative bank through our social media presence. As a result, we currently have more followers on LinkedIn and YouTube than any other bank in Chile, and we have reached a 300,000 follower mark on LinkedIn. On slide 10, we share with you that our asset management arm was chosen as the leader in sustainable investment in 2022 edition of Alas Vinci. This was the fifth time we received that recognition as we achieved the first place in responsible investing in sustainability research, as well as the second place in corporate governance investing. As asset managers and lenders, we understand we have a role in promoting sustainability investing And we are committing to fulfilling that role as part of generating sustainability results. Now let's move to slide 11, where we are showing the performance of a return on average tangible equity during the last eight quarters. As a reminder, we focus on return on tangible equity in price to tangible book metrics, because they better reflect our operating performance and valuation, as they are not distorsed by non-cash goodwill generated by the merger of Itaú and Corbanca. When comparing results in multiple across Chilean banks, it's critical to keep that in mind. Our return on taxable equity has been above a 17% for the last eight quarters in Chile, and has been comparable with that of our peers. As you can clearly see from where we were ranked in each quarter versus our main competitors. Therefore, it's quite clear that we have achieved the convergence of results that we expected. We are now creating value for our shareholders, which is our number one goal. On slide 12, you can see how we can continue to advance towards achieving our goal of becoming Chile's fast-growing bank. Over the last 12 months, we have met that objective across multiple products, such as consumer installment loans, trade finance, leasing, and factoring. We continue to grow by leveraging our competitive advantages in customer experience and product depreciation. While remaining very selective in terms of... That selectivity can be seen in our conscious decision to slow down growth of overdraft credit lines. which are relatively risky products. On slide 13, we display our ESG-related projects. We have been tracking our development in S&P corporate sustainability assessment since 2019. Itaú Corbanca received an S&P Global ESG score of 70 or above in the 2022 evaluation. an increase of 7.7% year-over-year. As a result, for our most workforce in sustainability space, we have achieved the second highest score among Chilean banks. We achieved the 82nd percentile across the 44 banks that are part of one or more Dow Jones Sustainability Family Indexes. and the 94th percentile in the universe of 736 banks globally assessed by S&P's CSA. Finally, we achieved a 70 score on the Mercado Integrado Latinoamericano score. This time, the improvement in our CSA score put us well above the required score of 66 to be included in the MILA index. I am optimistic that we will continue to deliver on this pillar of our strategy because responsibility and sustainability are part of our culture, and we are truly passionate about our initiatives on those fronts. Now, moving forward to slide 14, where we present the financial highlights for the fourth quarter of 2022. Our consolidated net income reached 83.5 billion Chilean pesos, And our net income in Chile reached 103.8 billion Chilean pesos. When we look at our full year, we reached a consolidated net income of 456.9 billion, while our net income in Chile was 881.2 billion. Consolidated return on tangible equity was 12.4%. while return on tangible equity in Chile reached 17.7% in this quarter. When we look at our profitability for a full year, we had a 17.2% return on tangible equity on a consolidated basis and 22.2% in Chile. Consolidated financial margin with clients grew by 31.1%, boosted by high revenue of high volumes, especially of asset and liability portfolios, as well as high interest rates in both countries. Consolidated fee income grew by 15.6%, primarily due to higher results in the financial advisory and other commissions in both countries, as well as high results in insurance brokers in Chile. Consolidated non-interest expenses increased 15% year-over-year as a result of higher inflation, while the efficiency ratio remained basically stable at 54%. Consolidated cost of credit increased by 24.8% over the low base of 2021, which was positively impacted by the economic support granted in the pandemic, mostly in Chile. When we look at our credit portfolios, we grew 13.4% in Chile and we decreased 0.6% in Colombia in constant currency compared to December of 2021, with customer and mortgage loans in Chile as the biggest contributors. On slide 15, we can observe how Chile's loan portfolio mix changed during the last 12 months. In line with our strategy in overperforming our 2022 guidance, the total portfolio increased by 13.4%, with consumer lending increasing 26.1% and mortgage loans increasing by 16%. The share of retail in our portfolio climbed by 169 basis points, reaching 38.6%. Since we began pursuing that strategy in 2016, the retail loans in our portfolio has increased by over 10 percentage points. Moving to slide 16, we can notice that our financial margin with clients in Chile increased by 8.2% during the quarter and 27.9% over the previous year. The improvement compared to the third quarter is primarily driven by an improvement in capital and liabilities margins due to high interest rates, as seen on the graph at the bottom of the page. The graph on the right-hand side demonstrates that our average rate of financial margin with clients increased by 20 basis points in the fourth quarter, continuing the rising trend that we signaled in our guidance for 2022. Nonetheless, we expect the rate to remain stable when interest rates begin to fall as a result of the changing mix of our assets toward retail, as well as improving spread in some business lines. On slide 17, we can see in the fourth quarter of 2022, our financial margin with the market was 47.1 billion Chilean pesos. which is a 54% increase from the third quarter. The increase was driven by high trading volume, which offset the effects of declining inflation. As we can see, our one-year moving average of financial margins with the market has been quite consistent over the last three quarters. Nevertheless, we do not expect to maintain those levels of financial margins with the market as inflation declines as we expected over the coming quarters. On slide 18, our attention is on fees, which grew 19.7% year over year, even though we fell relative to the last quarter. When compared to the fourth quarter of 2021, commissioning fees grew by 19.7% because of high credit card fees driven by marketing campaigns undertaken during the year, as well as the integration of MCC our private banking business into the bank since June 2022. Insurance brokerage fees also contributed by increasing 17.8% year-over-year. Here on slide 19, we observe our major credit risk indicators each other. In the fourth quarter, the cost of credit was 86.6 billion Chilean pesos. which included the $5 billion in additional provisions established during that period. Total NPLs remained stable as a decrease in commercial lending NPLs offset an increase in consumer loans NPLs. NPL coverage remained largely stable, reaching 164%. Excluding additional provisions, our credit cost to loan portfolio ratio was 1% in the year. in line with our guidance from 0.7% to 1%. Anticipating a more difficult credit position going forward, as well as further increase our focus on collections. Here on slide 20, we see that our non-interest expenses for the full year of 2022 increased by 11.4%, 190 basis points less than inflation. We had a seasonally high quarter in expenses in the fourth quarter compared to a relatively low base in the third quarter. The increase in expenses in the fourth quarter was caused by the effects of greater inflation in Chile and the Chilean pesos devaluation observed in 2022, as well as by rising interest IT expenses. These cost increases must be seen in the context of a double-digit growth in loans and transactions and an overall revenue growth of 31.8%. As a result, the bank efficiency ratio decreased to 45.65% in the fourth quarter when compared to the fourth quarter of 2021. Now let's move to slide 21 on Colombia, where we continue to run as more profit while we restructure our operations and cope with the difficult economic scenario. Progress is mostly visible in the cost side for now, where we closed 2022 with 30 fewer branches, as well as a reduction of 11% in headcounts. Our strengthened leadership team continues to move forward with the transformation program in Colombia. We believe that we are headed in the right direction, even though results might take longer to materialize due to the adverse economic conditions that the country faces. On July 22, we highlighted that our settlement ratio improved by 20 basis points in the fourth quarter. as a result of retained earnings and the appreciation of the Chilean pesos, which positively impacts our capital ratios. On slide 23, we recapped how we fared against our 2022 guidance. Our financial margins we find increased as anticipated as interest rates rose. Low growth was stronger than expected as it gained momentum in the second quarter. Cost of credit was 1% of our loan portfolio was in line with our guidance, reaching 1.2% as the result of additional provisions of 46.7 billion Chilean pesos established during 2022. Non-interest expenses increased by 190 basis points less than inflation. It rose by a month one-third of the increase in revenues. Overall, we met or exceeded expectations in every dimension, while achieving a return on tangible equity in Chile of 22.2%. On slide 24, we present our macroeconomic scenarios for 2023 in Chile and in Colombia. We expect a slight contraction of the Chilean economy, along with a significant decline in inflation and interest rates. The trend is similar in Colombia, while GDP growth is slowing down to 0.8%, while inflation interest rates fall, although not as rapidly as we are going to see in Chile. On slide 25, we outline our estimates for 2023. First, we anticipate our average rate of financial margin with clients to remain largely stable. as improvements in loan mix and spread offset the impact of falling interest rates. We expect loan growth to be rather subdued due to economic slowdown and more challenging credit conditions than last year. As a result of those credit conditions and the expected implementation of new provisioning rules for consumer credit, we expect the cost of credit to be between 1.1% and 1.5%. Finally, we expect costs to grow in line with inflation as it declines rapidly and we manage through the pressure of high investments in IT and talent. While we do not expect our returns, as well as those in the banking industry, to remain as high as last year, it's clear that we have achieved convergence of returns with our peers. More importantly, we are creating value to our shareholders, which again is our number one goal. With this, we conclude the presentation I had for you today.
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