Itaú Corpbanca
Q1 2020 Earnings Call Transcript

Published: 4 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Itaú CorpBanca First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].I would now like to hand the conference over to your speaker today, Claudia Labbé, Head of Investor Relations. Thank you. Please go ahead, ma’am.

[Claudia Labbé:]

Good morning. Thank you for joining our conference call for our first quarter 2020 financial results. Before proceeding any further, let me mention 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 that we adjust for non-recurring events, and we apply managerial criteria to disclose our income statement. This managerial financial model reflect 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 fare under these different perspectives. Please refer to pages 9 to 12 of our report for further details. Now, let's continue with the presentation.First, Mr. Moura will comment on 2020's first quarter results. Afterwards, we will be available for a question-and-answer session. It is now my pleasure to turn the call over to Gabriel.

[Gabriel Moura:]

Good morning, Claudia. Good morning, everyone, and welcome to Itaú CorpBanca's first quarter 2020 earnings conference call. As you are about to see, we have broken down this presentation in three parts

[Operator:]

[Operator Instructions]. Your first question comes from the line of Jason Mollin with Deutsche bank. Your line is open.

[Jason Mollin:]

Hi, this is Jason Mullen with Scotiabank. Gabriel, thank you for the presentation and following up as well the presentation you gave on COVID. You mentioned here multiple measures and campaigns taken by government sector, Itaú CorpBanca. At this point can you talk about how Itaú CorpBanca has differentiated itself versus peers in Chile as well as in Colombia? What are some of the things that you believe that Itaú CorpBanca is doing better than peers and some of the things...?

[Gabriel Moura:]

Thank you for your question, Jason. I think it has been a challenging moment for all the banking industry. I'm glad to say, Jason, that in this moment, it was very important for all the banks to act together in terms of their actions. So, what I think is more important here is that I saw all the banks moving in terms of having facility for the clients adapting the cash flows for their clients at this moment, doing donations to recognize that we all need to be part of the solution. So, one thing that I'm very glad is that most of the things that we did, all the banks worked in the same direction and I think -- and I cannot stress this enough. I don't think that this is the moment to generate comparative advantages in terms of some of those criterias that we have discussed right now. Because I think that everyone needs to be part of the solution here. What are the things that I believe that we did very well during this? I think that we were very fast. I think that we have adapted our operations quite quickly to the demand and have a strong deployment of remote capabilities. We were available for our clients with all the footprint for our branch work -- from our branches, whenever we had demand for it, and also through the digital. We were able to put on the campaigns for deferral of credits I think faster and more digitally than the other banks. Some of the discussions on the banks where the clients needed to go to the branch or had some physical process to go through and I think that we were among the first ones with a full digital offering for that. If you look at the adoptance rate that we have, I think it kind of reflects that.On the other things that we did is, I believe that the value that we have for our customers, you can divide it in both -- mainly three main pillars. One is transactional with all the products that we have for our liquidity of our clients, for investment management, for risk. So, I think that on a transaction basis we have several projects. The second pillar that we have I think is in terms of advisory, meaning that working with clients to understand their needs and to fulfill the products that they have. But I think that also we have the third pillar that we were not exercising that with all the availability of distribution channels that we now have, which is information. So we have been working with Brazil in initiatives that they have, which is called Vision of Leaders and we have adapted that to Chile. If you take a look at YouTube, the kind of views that we have for the context that we are producing are quite relevant. When you compare to the other banks, I think that we became a major player in streaming information here in Chile, exploring new content, exploring new distribution channels. I think in that case we are opening new doors to become a more digital bank, not only for the first two pillars, which is transactions and also advisories, but how we can give better information, giving everyone that we know, given that we are across different sectors. So, we brought the CEO from ENAP which is the major oil company of Chile to talk a little bit of the market. Doctors, we brought several different people. Ex-Central Bank Governors, ex-Ministers Of Finance to give lectures, to give talks to our client and open to everyone in generating content.So, I think what we did and I'm very proud of is that, every investment that we undertook in the last few years gave us capability to play more beautifully at this moment, and I think that we are fulfilling this role. So, I feel proud of what we would accomplish on this performance.

[Operator:]

Your next question comes from the line of Sebastián Gallego with Credit Capital. Your line is open.

[Sebastián Gallego:]

Actually some questions. The first one related to loan growth. I know obviously guidance is under revision, but just wanted to get a sense on how do you expect loan growth to evolve, considering the initiatives given by the government? Precisely, your strategy has been focused on consumer, but most of the initiatives coming from the government are associated to the corporate or SMEs segment. So, how do you see that impacting your loan mix and how do you expect the system as a whole to absorb all those new loans? Second question, maybe if you can clarify on the acceptance rate on the credit deferral campaign. I just want to get a confirmation if the 48% client acceptance rate on the consumer and commercial loans means that have -- pretty much half of the clients have received some type of benefit at this point. And lastly, if you could talk about the forces that may move the margins, client margins in Chile this year. And how do you probably roughly estimate that in which direction might go in terms of margins? Thank you, Gabriel.

[Gabriel Moura:]

Sure. Thank you so much for your question, Sebastián. Your first question was about loan growth. And as you mentioned, I think it's quite challenging to do projections of GDP and loan growth based on the date that we now have. We have a very large matrix in which we plot different scenarios for GDP growth based on what the date that we as an economy start to operate normally. And we have some milestones for that. So, because we don't still have completely clear what is the date that we are getting out of the situation? It's hard for us to do any projections for the future. What we know is that as we go through time, it becomes increasingly difficult to see a virtual cycle for the short-term. Nevertheless, as we mentioned, I think that the mix will change in the economy. I think that, you do see more need for leverage on commercial, on companies. And the reason for that as I mentioned before, I think that we are going to see good businesses with good competitive advantages, good clients, that have a good financial structure, but with liquidity issues because they are not sound. So for those clients, of course they need to increase their leverage for a period of time that naturally will converge through time, of course, and not differently from what we saw during the social unrest in Chile.You're going to have the type 2 situation, which is, businesses that are not that competitive, that are not with a sound financial structure, having more serious issues that leverage on a standalone basis, doesn't solve the problem. So I think that what we've been doing is taking a look at sectors, taking a look at companies case-by-case to understand what are the situations. I think that because of that you're going to see commercial more active than consumer credit, especially because consumer credit is at most of the cases related to the acquisition of something, the consumption of some service. And as you see consumption going down, it's natural that you're going to see less credits.On the other hand, because you're talking about working capital for the second group, for companies, that's where I think that you're going to see a higher growth. I think that's a little bit of the numbers that we have seen on the past month or so, so commercial going more than consumer. I think for the market as a whole will have that trend, I don't think we are going to be that different. I think it's for us to maintain any strategy at this moment and try to force some growth on consumer for the market that is right now. I think it will bring an adverse selection process for us and will consume margin.So at the end of the day, the changes in mix that we need to do, we are aiming at better return. So we cannot blindly focus on the same things that we were focusing before without adapting ourselves to the market we now have. We still think that it's very important for us to change mix, but we know how to adapt to these conditions into the market to do it on a sustainable way.The second point that you mentioned was acceptance rates. And yes, we have the acceptance rates for about 48% of the clients that have non-overdue installments in credit for mortgages and also for consumer loans. You have to remember that -- and we took a look at it, clients that are postponing the credit, not necessarily their clients that are in need for liquidity or in need -- or they have bad credit positions. I can give you an example, on the mortgage offer that we did, when we take a look at the risk profile of the clients that are taking this offer, they're quite good and the reason for that is based on the interest rates that we are offering and we do not discriminate client with according to interest rates for this specific offering. We have seen clients seeing this as an essential opportunity for them to have lower interest rates for some period. That's why I would not be very extreme in saying that clients that are postponing the credit right now are really clients in need and clients that will bring some more cost of credit in the future. So, I don't think that the 48% is an indication of cost of credit. But it is indeed important to observe that we live in a period in which costs of credit tends to be higher, but I will not establish a direct link between the acceptance rate and also cost of credit.The third one you asked about margins, I think that in terms of -- let's separate margins like we do in three different parts. So, for margin with clients, they have three different vertices. The first one is from credits. And in credits I think that we are seeing stable margins. The cost of funding has dropped significantly for some of the products that we have seen, especially for short-term credits or short-term costs of credit. If you take a look at deposits rate, deposits rate our being 5 basis points, 3 basis points for 30 days. So, in that sense the cost of funding went down. But also a large part of it was benefit for our clients. So, I do not expect larger financial margins for credits, but I also do not expect a compression of margin aside from the discussion we had which was for lines of credit, the regulations changes in Chile. So we see lower volume that affected the mix. But aside from this, I do not expect pressure from this.The two other vertices, I think there is some pressure, which is the financial margins with liabilities and the financial margin with our capital. Both of them are directly affected by lower interest rates. In both cases, we are hedged on a longer term. We have durations for three years for our current account deposits and for our capital.So, we are not experiencing the effects of the lower TPM right now, but we are hedged for some period of time. So, we can maintain that but as low as interest rates go down, so those are margin with clients. So, in that sense, I think that the pressure that you have in margins are basically from the free float that you have, in that sense our disadvantage compared to other banks become minimal. So, at zero percent interest rates the difference of having current account deposits are not -- becomes very minimal. But what happens is not that I'm increasing my returns on that. The other banks I think that will suffer more on their margins than we do. So, I think that's on margin. I don't know if I answered all your questions.

[Operator:]

[Operator Instructions]. Your next question comes from Jörg Friedemann with Citibank. Your line is open.

[Jörg Friedemann:]

Hi, Gabriel. Thank you very much for the presentation. I have two questions. The first one, we know that Itaú in Brazil moved already to full expected loss, even though the regulators do not require that. We also know that regulators in Chile do not fully expect the loss. So my question is whether your bank should align with the standards of the headquarters or should follow only the regulators’ recommendations in Chile? And in case you do align with the headquarters, if there are any changes that we might expect in terms of final cost of risk and coverage because of that? So, this is the first question. And the second question, looking into your presentation, you mentioned already the -- I know full adjusted CET1 taking into consideration the upcoming changes in the future, just wondering if the 6.4% already incorporate the acquisition of the additional estate that you’re going to do in 2022 from your partner or not? In the case it does not, what would be the further adjustment number for CET1? Thank you very much.

[Gabriel Moura:]

Jörg, thank you for your questions. The first one of expected loss, remember that here in Chile and also as we consolidated Colombia, we always work with an expected loss models. So we have our internal models for consumer, for commercial. So everything that we do is an expected model with probability of the fall and the loss given the full estimations that are either provided by the CMF in terms of the different ratings, the scales of ratings that they use, that they have and implied probability of the fall and loss given the fall or by group models for consumer for instance. So we have already -- we always operated on the aspect of loss model. Of course, during this period, the superintendents -- I am sorry, the CMF is also -- give more flexibility in terms of the -- how do you apply some of the models regarding period NPLs, because there are two parts of it, the coverage that you have to have for some -- for NPLs. And also how do you see a special rate negotiation of some cases. What we are doing is that for accounting terms, we will be following the guides of the CMF but we will be constituting additional provisions to adapt for the difference between our internal models and expected loss and any flexibilization that the CMS might have. I think this is important because -- I think it's very important to take into consideration the moment that we have, the facts that we have without generating tails in terms of future loss. So the way that we're going to manage this is we are going to continue to do the expected model as if there was not any flexibilization for the crisis. I think that's the more prudent way. We might see some more impact and not different from the discussions that we had so far. But I’d rather do it this way than come up with better numbers and create a tail for the future.You second question was about CET1. Yes, it's fully adjusted for everything that -- for every regulations that is now in place, but it does not contain the impact from a future acquisition of Colombia as a accounting practice and we did this in Helm and other acquisitions and it's the same thing that Brazil does. We only account for transactions after they have been approved for the regulators. We have all of the disclaimers on the financial statements, but we only incorporate them in the groups after we have an approval. The expected impact for capital for the acquisition in 2022 is not different from what we saw in Helm. I think it's quite similar, something around 0.7%, 0.9% impact from the acquisition. But it also does not contain any capital generation that we might have for the next few years.So I think those things should balance out. Nevertheless, if we're talking about capital convergence, of course, the scenario impact us in terms of our ability to converge to the levels of capital that we expect. We still maintain our plan should do the convergence of core -- with our core capital generation, but of course we need to incorporate in the scenario in which we might not be able to fully converge given the timings and how this crisis prolongs throughout time. In that sense Itaú Unibanco has already stated that it’s prepared to capitalize Itaú CorpBanca if and when it's needed.

[Operator:]

There no further questions at this time. I will turn the call back over to the presenters.

[Gabriel Moura:]

Fantastic. Thank you so much. I think with this, we conclude our conference call and we see you next quarter. As always Claudia and I are always available for you for follow ups that you might have. See you next quarter.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.