Itaú Corpbanca
Q4 2020 Earnings Call Transcript

Published: 1 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing-by, and welcome to the Itaú CorpBanca's Fourth Quarter 2020 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. . I would now like to turn the call over to your Claudia Labbé. Thank you. Please go ahead.

[Claudia Labbé:]

Thank you. Good morning. Thank you for joining our conference call for our fourth quarter 2020 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 comments as a result of macroeconomic conditions, market risks and other factors. I would also like to draw your attention to the financial information included in this management discussions and analysis presentation, which is based on our managerial model in which we adjust for non-recurring 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 through these different perspectives. Please refer to Pages 9 to 12 of our report for further details.

[Gabriel Moura:]

Thank you, Claudia. Good morning, everyone, and thank you for attending our 2020 fourth quarter earnings call. Today's presentation has three parts. Our fourth quarter 2020 results, our earnings release results as of the end of January 2021 and an update on our strategic agenda. So can we please move straight to our financial highlights on Slide 3. In the fourth quarter, we start to make the necessary adjustments to ensure that all of the possible impacts from the event from 2020 are reflected in 2020 results, enabling us to enter 2021 with a strong balance sheet and no lingering effect yet to be recognized. As a result, our consolidated cost of credit was CLP308 billion in the fourth quarter, which led to a negative net income of CLP124 billion. On the positive side, the result recovering in our financial margin with clients, which rose 4.6% in the consolidated and 6.6% in Chile, there was also a recovery in commissions, which rose 7.1% in the consolidated and 4.5% in Chile. Our loan portfolio contracted 3.5% in the consolidated and 3.8% in Chile, that reduction was concentrated in the wholesale loans and we focused on our weak demand due to the high level of liquidity in the market, as well as from our focus on shareholder value creation. That focus led us to be selective not only in terms of risk, but also in terms of the minimum returns we require for deploying your capital margin . We maintain a strong focus on cost control. And as a result, our consolidated non-interest expense rose only 0.5% in the quarter well below resumption. In Chile, fourth quarter expenses were 1.2% lower quarter-on-quarter and 1% lower year-on-year. We now move on to review our results for the full year of 2020. In Page 5 now, we can see how the macroeconomic indicators involved in 2020, and how they compare to our initial expectations for the year. As you might recall every quarter, we have updated our expectations for 2020 macroeconomic outcomes for both Chile and Colombia. When compared to our forecast at the beginning of the year, we observed the magnitude of the macroeconomic shock caused by COVID, which led to a GDP growth GAAP of over 7% in Chile and almost 10% percent in Colombia. Interest rates were also much lower than our initial forecast. At Central Banks, both in Chile and Colombia, aggressively lowered rates to counter the effects of the pandemic on the macroeconomic activity.

[Gabriel Moura:]

Okay, fantastic. I'm very sorry I got -- just got disconnected and I am back. So, as I was explaining the guidance that we have on Slide 23. For credit portfolio, we expect mid single-digit growth in Chile with higher growth in consumer, mortgages, in SMEs and lower growth in larger corporates, as we seek to improve our net interest margin. Consistent with our strategy, our growth focus will continue to be on the retail segment, which provide a broad range of products and services individuals and SMEs. As we announced in our third quarter earnings call, we expect our cost of credit to normalize to be between 1% and 1.3% still a little bit higher than our long run target, but with potential positive surprise. We will also maintain our focus on efficiency and especially once more deliver a cost below growth for the year. With this we conclude the presentation we have for you today. And we will gladly take any questions that you might have.

[Operator:]

Thank you. Your first question comes from Jason Mollin of Scotiabank. Your line is open.

[Jason Mollin:]

Thank you very much. My question has to do with operating efficiency. And you showed over the year in both Chile and Colombia that you closed some branches and reduced some headcount. You -- can you talk to us about the opportunity there to be as efficient as possible. And what that means in terms of those specific numbers in 2021, 2022. Thank you.

[Gabriel Moura:]

Sure. Thank you for your question, Jason. I think that efficiency is something that we've been pursuing it strongly since the merger, when you take a look that the synergies that we had prior to the merger, we achieved that as it was expected for cost synergies. The problem with the efficiency ratio for us is that although we've been very disciplined with the cost side of the equation on revenues for different reasons of the social unrest in Chile 2019 and the pandemic in 2020. We were affected in our revenues. Especially on the revenues, as I mentioned, due to the interest rate, so our financial margins with clients especially on the liability side with the lower interest rates and also on the credit concessions too that we have. Nevertheless, I believe there are still significant room for improvement on the cost side without the digitalization efforts and investments that we've been doing so far. We were able to reduce our headcount to reduce our footprint on branches. And I think there is still things for us to do. In Colombia, I think that there is an opportunity for us to be even more aggressive on the cost side taking a look at businesses that we have products that we have in focus on profitability there. So I think there are certain opportunities for us to be even more aggressive on costs in Colombia. The conjunction of all of this will entail lower than inflation cost increase. I think that's something that we can do for more a couple of years even growing our portfolio. And as a consequence, as we resume our growth in revenues and still are very disciplined on costs, we believe it is possible for us to converge to an efficiency ratio that is more attractive to our peers in Chile. I don’t know if I answer your question Jason.

[Jason Mollin:]

Now, that's very helpful. How does that affect costs based on corporate growing less than inflation, incorporate investments and continuing to show the improvements in the digital experience and the customer experience e cetera, does that includes a large increase in investment for…?

[Gabriel Moura:]

We have investment only in technology, particularly investments in technology something around between CHP40 billion and CHP50 billion in the last few years. And I think that by maintaining those levels of investments, we can do this digital transformation. But only we are aiming for as I mentioned in the proposal slides, we are getting good results from the investments that we did in the past. And I think that the level that we now have is adequate for what we see in the future. Having said that, the cost increase that I mentioned takes into consideration in the precision of our in amortization of those investments, as we fund the increase in the precision amortization, with the reduction of other costs from our robotics optimization process for instance that enable us to take mineralityout of them processes, ultimate provides the bank in some new ways and by that making us more efficient.

[Jason Mollin:]

Thank you very much.

[Gabriel Moura:]

Thank you, Jason.

[Operator:]

Your next question comes from George Friedman with Citibank. Your line is now open.

[George Friedman:]

Thank you very much for the opportunity. Good morning. And thank you for the explanation about another trends Gabriel. So I had two question, just asking first, can you show the numbers for a January in the presentation. It definitely lowers the improvement. But I noted as well that the pre-tax results, approximately 75% of it is coming from the results with the market, the financial margin with the market. And I remember that you told us some time ago, that depending on the iteration of rates and inflation you probably start to recognize stronger results on the financial margin with the market. So just wondering if the time has come for us to start observing the trends to be unleashed or if it couldn’t be recognized as non-recurring this term levels of financial margin with the market in January? And then attend to my second question. Thank you very much.

[Gabriel Moura:]

Sure. I think we had a strong January because of observation results. I would say that, of course this high inflation that we have observed and helps us on that phase. We are happy with the results that we have with treasury specialty costs I think they're mixed with two things which we talk a lot about the effects of inflation on the banking. But I think it's also important for us to remember that our key thing with finance is very strong for instance. We are the largest bank in FX with clients in Chile. We are a top bank in terms of the rebuttals with clients. So all the time activity with the treasury is also strong for us and n important in recurring results for us on the long-term. Anyway, we effectively have has the two components. But of course, the component of the seasonality that we have for inflation is larger. The same effect we should expect in the first semester as we see inflation higher than expected in Chile. So, I think that the good part is that we have -- we are having strong results operationally for the business also in retail. We're still lagging a little bit due to client activity with a particular credit concession is a little bit shy due to economic activity. We think that on the second semester, it should resume in the first semester, the story of the first semester for credit may be driving for the second -- program that the government has announced. And that we are working with our clients and SMEs to help them through this process, and taking the guarantees that the government has for those clients of credit, that enable us to go at a longer terms of credit for our clients. So I think that will be the dynamic on the first quarter. I think that operationally we're going to see better results from the second quarter on.

[George Friedman:]

Now, that's perfect, very clear.

[Gabriel Moura:]

You had else…

[George Friedman:]

Sorry. Go ahead, sorry.

[Gabriel Moura:]

No, no, no, I was just going to ask for your second question. I'm sorry.

[George Friedman:]

No problem. Thank you very much. Yes. My second question is related to capital, it was really impressive as a pointed out the conservation of such a challenging environments during 2020. Plus just wondering, what you believe is going to be best for capital markets. Because we know on the one hand, you're limiting the dividend payout. But on the other hand, we also know that in sometimes, in some quarters, Basel 3 will pick up as well as you are main partner in the bank is leveraged. And you have to do a buyback next year in Colombia, not sure. If there is any kind of possibility of you anticipating these write-backs provide some liquidity with this partner or it has not been discussed yet.

[Gabriel Moura:]

Sure. As you mentioned, I think in terms of operations, we wanted to look at capital. When you see everything that went to 2020 and the numbers of capital that we posted, I think that we were very resilient in terms of our capital management especially taking consideration all the provisions that we did. Of course, when we take a look at the convergence to Basel 3, the clients that we have -- that we initially have for the convergence of our capital base. I think that all that happened in 2019 and 2020 in terms of the credit cycle, in terms of the revenue growth, I think that makes us change a little bit of the clients that we initially have to only converge retaining our own capital. I think that's one of the main catalysts for this discussion. And we are just starting this discussion with our Board is the acquisition of Colombia go through the contracts that we have, we will buy the participation but in Colombia at the beginning of next year, and that will generate a negative impacts in capital of around 100 basis points. That's the estimates what we have as of now. Giving that and the convergence that we need to do for Basel 3, I think we have -- we need to have a conversation with our board and come up with some clients in terms of convergence, that may probably lead to a capital increase for the bank. We still have -- we still are having this discussion but believing the best that we have forwards giving the acquisition of Colombia and the impact that we have in 2019 and in 2020. Probably we will be discussing a capital increase on the next few years.

[George Friedman:]

All right, perfect. Thank you very much, Gabriel.

[Operator:]

And there are no further questions at this time. I will now turn the call back over to Mr. Moura for closing remarks.

[Gabriel Moura:]

Fantastic. Thank you so much for your questions. As I mentioned, we are very optimistic with 2021. I think that we are entering a new period in the bank that we have that we are very well provision that our investments in management, our investments in risk, where our investments in digital are -- we're taking good results for that. So we are optimistic with 2021. And we look forward to discussing with you the results for the next quarters. Take care and we you see you then.

[Operator:]

This concludes today's conference call. You may now disconnect.