Itaú Corpbanca
Q2 2020 Earnings Call Transcript

Published: 3 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Itaú CorpBanca's Second Quarter 2020 Financial Results Conference Call. [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.

[Claudia Montevecchi:]

Good morning. Thank you for joining our conference call for our second 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 nonrecurring events, and we apply managerial criteria to disclose our income statement. 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 our performance 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 second quarter results. Afterwards, he will -- we will be available for a question-and-answer session. It is now my pleasure to turn the call over to Gabriel.

[Gabriel Moura:]

Fantastic. Thank you so much, Claudia. Good morning, everyone, and welcome to Itaú CorpBanca Second Quarter 2020 Earnings Conference Call. As you were about to see, we have broken down this presentation in 3 parts

[Rodrigo Couto:]

Sure. I'm happy to be with you today and very happy to join Gabriel and the Itaú CorpBanca team. I'm looking forward to meeting you and working with you all in the future. And Claudia and I are available to answer any questions you might have. Thank you.

[Gabriel Moura:]

Fantastic. Welcome to the team, Rodrigo. With this, we conclude the presentation we have for you today, and we would gladly take any questions that you might have.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Sebastián Gallego from CreditCorp Capital.

[Sebastián Gallego:]

I have two specific questions today. The first one is related to the recent announcement made by the CMF in Chile, the regulator, providing a new extension for the special treatment of provision expenses, given the environment of the COVID-19 crisis. I just want to understand better from Itaú CorpBanca, the need for additional provisions going forward? And what could be -- even though it is highly uncertain, what could be the outlook at least for the upcoming quarters in terms of the need for additional provisions? And the second question is a bit different and is regarding branches and the presence in Colombia. I noticed that when you look at branches in Colombia and also ATMs, you guys have been reducing the presence here in Colombia. So I would like to understand a little bit better what could be the strategy going forward considering the bank's current market share in the local market in Colombia?

[Gabriel Moura:]

Fantastic. Thank you so much for your questions, Sebastián. Your first question was about two things. I believe the first one was the announcement of the CMF. As you remember, for all the postponements of credit that the banking industry did in Chile, especially for the consumer and the mortgages cases, the CMF has issued specific regulations in how you were supposed to treat those postponements in terms of the credit provisions. And it was due to the end of July 31 on the credit giving at the end of July. And now we postponed a little bit this treatment. In terms of the demand for postponement is increasingly lower, I think that, in our case, we saw markets more interested in postponing, given the level of uncertainty between the end of March and the month of April. And since then, the level of demand we have for clients in terms of postponing their consumer credit on mortgage have been very low. So in our case, I don't see that the specific announcement of the CMF has a major impact in our credit strategy. But when we take a look at the second part of your question regarding the additional provisions, what we did is because as we take a look at the NPL ratios, of course, they are lower than we expected, especially because of all the negotiations of credits that went through the banking systems in Chile, the same happened in Colombia, Brazil and other countries. So we have less visibility of the true NPL of the portfolio right now. So what we did in our case was establishing a second model, in which we somehow project what would be the level of NPL based on other macroeconomic variables that we have calculated. And for that, we use the additional provisions. So we don't want to lose our ability to make expected loss provisions based on the future, especially because I think that in terms of the information that we have right now, we can incorporate that in the portfolio. We did, as I mentioned, 19.5% -- CLP 19.5 billion in provisions. If I take a look at that as a percentage of our portfolio in Chile and with what I saw in the other banks, I think that we did very well, especially when you take a consideration that the other banks have roughly 50% more participation on their mix for consumer than I do. So in terms of the relative provisions that we did for the portfolio, I think they are okay. But I do foresee that we are going to make further additional provisions throughout the second semester. We've been taking a look at the models, incorporating all the information that we have. And I think that the best tool that we have in our toolbox right now in terms of incorporating all this information into the provisions, while maintaining a forward view in terms of expected loss, is through additional provisions. So I do expect to use them in the next few months. Your second question was about Colombia and the branches that we eventually closed in Colombia. I think that the strategy is similar to what we see in Chile. With the advances that we have on digital and the increase of the preference of the clients to transact over digital channels, when we take a look at the footprint, there is a margin for us to reconsider the footprint that we have and close some of the branches. We did that in Chile since Legal Day 1. Of course, there is a limit to what we can do. And I still believe that the branch network has an important role in the relationship with the clients, in the same way that we have other strategies than the mobile and the Internet which is our digital branches that somehow captures a market that falls between what is the physical branches attention and the self-serving characteristics of the digital offering. We follow the same strategy in Colombia. Of course, Colombia is a country more diverse geographically than Chile in terms -- more dispersed geographically than Chile in terms of its economic activity. So we also assess that in our model. But I do believe there are still opportunities for us, especially in Colombia, to revisit our footprint and adapt to the digital preferences from our clients. We do see that one of the, if I might say, the positive effects of the pandemic is that there is a full acceleration culturally from the clients in pursuing an offer that is more remote, more convenient. And in that term, even on the retail business as a whole, in the banking business, in other sectors of the economy, we are going to see an acceleration of the digital preferences. And that will enable, I think, that everyone to take a look at their physical footprint and adjust to that. I don't know if I answered your question, Sebastián.

[Sebastián Gallego:]

Perfect. Yes, very clear, Gabriel.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Alonso Aramburú from BTG.

[Alonso Aramburú:]

I had a follow-up on the provisions question, but more focused on Colombia, which -- the voluntary provisions you did in Chile, but you didn't do that much or you didn't do any voluntary provisions in Colombia. Can you comment about the cost of risk that you expected in Colombia and whether you will be making more provisions also in Colombia in the second half?

[Gabriel Moura:]

Alonso, thank you for your question. Yes, I think that the answer that I gave before applies to both Chile and Colombia. You were right, we did the provisions in Chile. In Colombia, we are in the process of developing the same models that we have in Chile. I do expect our strategy to be the same. Remember that Colombia, in terms of the cycle of the pandemic, was a little bit behind what we saw in Chile and in other countries. The curves are still growing in Colombia as we have to incorporate more information in our models. But I do believe that akin to what we are going to do in Chile in the second semester, we will need to take a look at the provisions in Colombia, especially because the traditional models do not quite capture what the market is doing in terms of the NPLs. The regulations in Colombia were a little bit softer in terms of how we calculate the provisions during the pandemic. So I think it's necessary for us to do additional provisions as well. But as we -- we lost somehow one of the main variables that we had for this analysis with the NPLs. We need to incorporate other things in our model. We are ready to that -- to do that in Chile. We already did some part of it. But I think that we need to move further along. And the same in Colombia. If you take a look at the cost of risk, it was a little bit lower in the -- if we don't do the additional provisions based on the current models that we have from the regulators in Colombia, you would see even lower provisions than we have right now, which I don't think it made quite sense in terms of the credit cycle we are leaving. So I think that it's necessary for us to do the additional provisions. But please remember that some of these provisions, these additional provisions, they are in substitution to what we have through the traditional methods as we see NPLs lower mainly due to the renegotiation. So I think there are some part of that it is in addition to the normal provisions that we have due to the cycle that we're leaving. But some part of it is in substitution of the provisions that we have, given that the NPLs lost a little bit of their predictability in terms of the credit quality of the portfolio.

[Alonso Aramburú:]

Okay. And just to follow-up, you commented on the demand for postponement or rescheduling of loans being lower or improving in Chile. Can you give us some numbers on that? And also, can you give us maybe some numbers on -- in the case of Colombia, where we're seeing the lockdowns continue to extend, are you seeing also there less demand for rescheduling of loans?

[Gabriel Moura:]

On the margin, yes. As I mentioned, the higher part of the demand was around April, I would say. When we take a look at the curves in terms of the demand for the clients of their reprofiling of their cash flows, it was in the past. So the marginal demands are lower. The number of the total portfolio that was -- total portfolio of consumer and mortgages that was affected by it, it's kind of similar in both countries. It's kind of similar with the industry. It's around between 30% and 35% of the credit. I think it's much akin to what I see in other countries based on research that I see on the market. So I think there are less demand for it. Of course, part of this -- the renegotiation process went through in April. So you're going now to start to see the repayment for that. And in some cases, you're going to need to do the reflow of some of the credit. Of course, all the initiatives that the government has in terms of increasing income for the population help on this process. The same goes for the Brazil, Chile and in Colombia. But I do foresee that in terms of -- we are going to need more time in order to stabilize the cash flows for our clients. And you're going to see everything during this process. You're going to see businesses, for instance, they are good businesses with a good and sound financial profile with good products, clients and everything, but they are not selling much right now. So the same liquidity process that the banking industry went through 2008, for instance, is not happening right now on the financial system, but it's happening for clients. So it's a liquidity crisis somehow for the clients as they had to adapt for their cash flows. So in terms of the firm value of that, I think they're fine. Of course, the equity takes a part of the impact for the families and the clients -- for the family and the companies, I'm sorry. Nevertheless, I think that everyone, [Technical Difficulty]. Of course, there is a need to recognize that, that affects the portfolios in terms of the expected loss. And hence, we are going to see more provisions.

[Operator:]

There are no further questions at this time. I turn the call back to the presenters for closing comments.

[Gabriel Moura:]

Fantastic. Thank you so much for your questions. And as always, Rodrigo, Claudia and I are fully available for you if you have any questions about the bank, about the economy. And we will see you next time. So take care. Bye-bye.

[Operator:]

That concludes today's conference call. Thank you, everybody, for joining. You may now disconnect.