Itaú Corpbanca

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00:37 Thank you. Good morning.

Thank you for joining our conference call for our third quarter twenty twenty one 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 microeconomic conditions, market risk, and other factors.

01:08 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, and which 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.

01:46 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 nine to twelve of our report for further details.

With us today, in this conference call in Santiago are Mr. Gabriel Moura, CEO; and Mr.

Rodrigo Couto, CFO. Mr.

Moura will comment on the progress on our strategy and twenty twenty one third quarter results. 02:21 Afterwards, we will be available for a question and answer session.

We have included Q and A box on the console where you can type in your questions if you are not connected by phone. We will take questions from both the phone and the console.

For the latter, we will read and answer your questions verbally. It is now my pleasure to turn the call over to Gabriel.

02:50 Thank you very much, Claudia. Good morning.

Thanks for joining us for today's conference call. Today, we will present you the progress we have been making in our transformation programs, as well as the highlights of our second quarter results.

So, starting on slide number three, we recap the five pillars of our ongoing transformation based on disruption, customer centricity, simple and digital, innovative organization in culture and finally sustainable results. 03:24 On slide four, we give you some concrete examples of the progress we have been making on these five pillars.

On the disruption front, we are quickly advancing towards launching the first credit cards with our Rappi alliance, as well as making progress in the scaling up our business model for investment centered on independent financial advisors. 03:51 on customer on customer centricity, we have made major strides in improving our NPS, which has been the fastest growing in the banking industry.

On the simple and digital pillar, we have the best rated banking app on the Apple in Google stores, as well as the best banking website for our SMEs. We have been moving quickly with the towards agility, expecting to end this year with four to five hundred staff working in agile working model.

04:27 Finally, we have achieved a turnaround in our performance in Chile. We have a clear and actionable plan for Columbia and our strong ESG focus has been widely recognized.

On the next slide, we will go over some of these examples with more detail. 04:45 On slide six, we present an update of where we are with the .

We are in the way with the family and friend space and will go live with the credit card launch on the first quarter of twenty twenty two. The first product will be credit cards with benefits in the Rappi platform, no commissions and fully digital.

05:08 We will provide to customers who want them and we expect many, we want them because it's in fact, a beautiful card. But it can also be a virtual card for those who want it.

The onboarding process will be fully digital in risk models leverage on happy customer data. New functionalities will be incorporated throughout the next year as we progress towards a more comprehensive digital product offering.

05:37 Moving on to slide seven, we provide an update about how we are scaling up our business model for the investment business based on independent financial advisors. We have reached sixty independent financial advisors covering not only Santiago region, but also other main regions of Chile, where we have ten advisors.

06:00 We have also enabled the platform for offshore investment. As we ramp up the number of advisors and the customers in our IFA model, we are already observing how powerful this is for our five new customers, for our full-fledged banking services.

Up to this point, we have seen that forty four percent of our new IFA customers open accounts for users on our private bank. 06:28 Let's now move to Slide nine where we show the progress we have made in customer satisfaction.

We are the bank with the fastest improving NPS in the country according to the latest Ipsos poll service Pulso de Servicios. We have improved our internal NPS by forty four percentage points, which is a remarkable improvement in a short period of time based on the experience of the specialist consultants that we work with.

06:57 We are very happy to have achieved an NPS of sixty two, but by no means satisfied. It is not enough for us to have a good NPS compared to other banks as we are obsessed with customer experience and customer expectations are constantly rolling challenges to compete with leading players for every consumer industry.

07:21 Now let's move to slide eleven where we present the evolution of one of the key aspects of our service model, our digital branches. These digital branches provide personalized service, as well as the full functionalities of physical branches in a model that is more convenient for our customers.

07:40 For example, due to the extended hours of service, as well as being more efficient. Ultimately, our customers choose the best service model for them.

So, we only encourage customers to try digital branches if their profile indicates that it will be better served through those. 07:59 NPS numbers clearly indicate that our customer satisfaction with digital branch model is sustainable on the longer-term.

We are pioneers of digital branches in Chile and we are now rapidly scaling up the model. We expect to the end the year with six digital ranges expanding to twelve next year.

In terms of customers, we expect to end twenty twenty one with forty two thousand customers in digital branches and more than double that to one hundred thousand next year. 08:34 On the next slide on page twelve, we show how we are positioning ourselves as digital leaders both through the content we generate and through the development of opportunities we provide to our employees.

Our líderes visión on YouTube livestream keeps going strong, following the experiences of Steve Wozniak, Christopher Gardner, and with the Chat of Kevin Mitnick, formerly the world's most wanted hacker, who shared his tips of how to keep safe in the digital world. 09:08 We believe that talent development as well as attractions is one of the main drivers that we define with speed an extent of our transformation process.

Therefore, we’re being heavily investing in employee training and development of key capabilities for our digital transformation. 09:26 Moving on to slide fourteen where we show our progress in implementing agile @ scale model.

We started last March with the first three agile communities. By the end of this year, we will have five hundred staff internal and external working in eighteen agile communities.

Our plan for next year is to triple this number of staff in agile working model to fifteen hundred distributed in more than thirty communities, which will cover all of our main products and service lines. 10:03 The implementation of this agile @ scale has been very important in increasing the speed of product innovations and adaptation to our customer preferences, which we believe would be one of main drivers for further boosting our customer experience and NPS.

10:22 On Slide sixteen, we further expand on the topic of ESG. As I have mentioned in previous call, we have incorporated an ESG focus in all of our business.

I have recently told you about our strong ESG commitment in our asset management business, about our wholesale banking in ESG portfolio, as well as our adherence to global system sustainability principles such as the UN Global principles and the principles for responsible investments. 10:55 We now highlight how we have been providing access to financial services to SME with over eleven thousand new SME clients year to date.

We have also financed several SME sustainable projects, such as pellet plant and solar energy projects we show as examples on this page. We also highlight our industry leading team that has assessed the projects we finance along the key dimensions of environmental and social risk management practice.

11:28 Let's move on to the next part of the presentation. On Slide seventeen, where we present the financial highlights for the third quarter of twenty twenty one.

Our consolidated net income was fifty nine billion Chilean pesos, mostly in the Chilean market that we operate. 11:47 Consolidated return on tangible equity was thirteen point two percent and return on tangible equity for our Chilean operation was seventeen point two percent in this quarter.

When we move to our profitability in nine months period, we have our return on tangible equity of sixteen point nine percent on a consolidated basis and twenty point eight percent in Chile. 12:14 Financial margins with clients grew nine point two percent year over year, mainly due to strong position contributions from higher deposit volumes, increasing our net interest margin for two point – from two point two to two point six percent.

This reflects our strategy, especially in the wholesale sale bank, where we have been selected in deploying our capital only at acceptable return levels. 12:41 Fees grew thirty point six percent, primarily due to higher financial advisory fees in Chile and Colombia, as well as an improvement in insurance brokerage fees in current account services and overdraft fees in Chile.

Non-interest expenses increased zero point nine percent relative to the third quarter of last year, which is much lower than inflation for the period. 13:06 Cost of credit was down forty two point seven percent year over year, reflecting the benign credit conditions that we have experienced.

When we look at our credit portfolios, we grew zero point six percent in Chile and two point seven percent in Colombia in constant currency compared to September twenty twenty, with mortgages loans in Chile, in retail loans in Colombia as the biggest contributors. 13:33 In line with our goal of becoming the fastest growing bank in Chile, we're monitoring our position in rankings in terms of credit score.

Over the last twelve months, we have ranked at Number one in mortgage credit growth in both three months and six month periods and have ranked number two in customers installment loans in the last six and twelve month periods, again consistent with our strategy of increasing the share of retail in our business mix. 14:03 On slide eighteen, we see how our loan portfolio mix involved in the last twelve month period in Chile.

Consistent with our strategy, we increased the share of retail loans in our portfolio from thirty two point eight percent to thirty six point three percent, an increase of three fifty three basis points. 14:25 Since the merger in twenty sixteen, the share of retail in our loan portfolio increased by seven point eighty four percent.

We still see more attractive returns from growing retail. So, we expect the share of retailer in our portfolio to continue to expand, especially once consumer lending begins expanding again after the effects of the with loss subside.

14:54 Nevertheless with our new head of Wholesale Banking, Sebastián Romero, having just came on board in September we are now starting a major transformation in our wholesale business, which will enable us to grow with attractive returns in wholesale banking as well. 15:11 Moving to slide nineteen, financial margins with clients grew one point three percent quarter over quarter, mainly driven by liability financial margin.

The chart on the right hand side shows that our net interest margin was quite resilient over the last several quarters of low interest rates. Nevertheless, we believe our NIM will benefit from higher interest rates through an increase in liability spreads, as well as in financial margins from our own capital.

15:44 On slide twenty, we show the evolution of our non-interest expense, which declined one point nine percent year over year. In looking at the first nine months of twenty twenty one, we see an increase in non-interest expense of zero point seven percent, compared to the same period of last year.

16:06 The chart on the bottom left side compares our cost growth with inflation over the same period and demonstrates that our costs have grown much less than inflation over that period, which is consistent with a long standing commitment of cost control. Even more significantly, the chart on the bottom right side shows us that the efficient ratio has improved over the last four quarters.

16:33 Here on Slide twenty one, we can see our main credit indicators in Chile. Cost of credit in the third quarter was twenty nine billion Chilean pesos, which corresponds to zero point six percent of our average loan portfolio that is closer to the bottom of our revised guidance of between zero point five percent and zero point eight percent for the year and also below what we reconsider our steady state cost of credit of zero point eight percent.

17:06 Cost of credit did increase relative to the second quarter, but one must keep in mind that the second quarter figure was very low base of comparison as it was positively impacted by some large wholesale credit recoveries. NPLs declined in the quarter as the good portfolio performance continued a benign credit condition.

17:30 Nevertheless, and consistent with our expectation loss provision model we established additional provisions for the wholesale credit in sectors that we believe are still at risk of deterioration because of lingering effects of last year's crisis. 17:46 Let's move to Slide twenty two.

Net income in Colombia was up to thirty two point three billion Colombian pesos. NPLs were down and NPL coverage was up as we also proactively reinforce provisions for some wholesale credits consistent with our expected loss provisioning approach.

Our turnaround plan for Columbia consists mainly on focusing growth on target segments and improving efficiency. 18:16 We are starting to see some results on the growth front as our portfolio grew by three point one percent last quarter.

On the efficient front, the downward trend continue in terms of the number of branches and headcount. 18:31 We have our one-off effect in the administrative expenses in this quarter.

Nevertheless, even considering that effect has been expense growth in the first nine months of twenty twenty one relative to the same period of twenty twenty was one point nine percent by our below inflation. We are moving on with the limitation our transformation program in Colombia, which we expect will have a major impact on efficiency next year.

19:01 Here on slide twenty three, we see that our fully loaded set one capital ratio was stable quarter over quarter. We are completing today the first round of the equity offering for increasing the capital of the bank, which we will address our capital position.

We will be providing updates for that process as information becomes available. 19:27 Now, we move on to Slide twenty four, which is our last slide.

We present a comparison of our performance in the first nine months of twenty twenty one with the same period of twenty nineteen, which was the less normal we’ll say nine month period that we have. 19:47 The main message is that the bank has achieved a major turnaround into farms.

Improving return on tangible equity from nine percent to sixteen point nine percent, while we are surpassing pre-crisis revenues with much lower cost of credit in a very controlled cost growth. On top of that performance standalone, we are implementing a fully-fledged digital transformation both in Chile and in Colombia, touching all performance levers, as well as positioning the bank as a disruptor in key markets.

20:23 Our ambition is to be the fastest growing bank in Chile and achieve thirteen percent to fourteen percent consolidated return on tangible equity, including the capital increase in the short to medium term. We are on our way in confidence.

We will get there. 20:41 With this, we will conclude the presentation that we had for you today and we will gladly take any kind of questions that you might have.

21:11 Hi, and thank you for the call. Yes, I have a couple of questions.

The first one on what you mentioned on Colombia on the efficiency efforts and the possibility of large cost cutting next year. I mean, where is your focus there?

Is it on cutting branches, more branches, is it in a person, can give us a little more color on where the cost cutting will happen in Colombia?

21:38 Sure. You mentioned two questions, Alonso.

The

21:44 Yes. The second one is on retail growth, which did nicely this quarter, both in Chile, I mean in Colombia, it was a little surprising and good to see that the growth in Chile, given the liquidity in the system.

So, I just wanted to get a little more color there as well. If you are seeing that, maybe that’s a one of this quarter, are you seeing a recovery continuing in the fourth quarter as well?

22:06 No, fantastic. Thank you for your questions Alonso.

When we take a look at the plan that we have in Colombia, we did that bottom up approach in and that was close to initiatives that we have for Colombia. If I were to divide the business in Colombia in three different main pillars, we have a wholesale business that is, it’s very close to remunerate our cost of equity in Colombia.

22:38 We have a solid performance on treasury that from the last few years and this year also continues to remunerate our capital in Colombia, and the main challenge for us is in our retail business. Given the scale that we have in all these structures around retail, distribution product, and this kind of operation that the kind of support that our retail business needs.

23:07 So, the main focus for us is taking a look at the whole bank, but of course, the most impact that we see on the short to medium term is on our retail position. If you take a look at the level of branches that we have for our client base, as well in terms of structured products that we operate, I think there are many things that we can take with synergies from Chile to rethink as we give the distribution in terms of the digital branches that we have operated in Chile.

23:45 So, I don't think it's only taking a look at the footprint on the branches, but taking a look at the whole retail business and we rethink them. I think for some time, we did in Colombia a strategy that was based mainly Chile, meaning that we have the same structure, the same universal bank.

But the problem is that in Chile, we have roughly thirteen percent participation in the market, something around eighty percent on retail. And if we take a look at retail in Colombia, we have three percent the market.

24:27 So, I think that we have to rethink this strategy. Adapting the structure that we have in Columbia to be more focused on the affluent client fees that we have that were based on the acquisitions from the business on Santander and also we found and preparing the growth in retail to happen more through the digital strategy then from the distribution network that we have nowadays.

24:56 So, I don't think there is a super bullet in Colombia saying that no, we do this, we will convert. I think the products in wholesale that we are getting out of them security services is an example of a business that we are rethinking in Colombia, but most of the effort goes in our retail operation.

25:23 The second question you asked Alonso about retail growth in June. In for sure, we see a dynamic in the market, that given the withdrawals from the pension plans, the market is flooded with we see that effect on consumption.

We see that effect on inflation, and all the effort that the Central Bank puts in the change monetary policy goes into the same diagnosis of what is happening into the market. 25:58 The flip side for that discussion is that that we indeed see a lower aggregate growth in the economy, but then again, giving the share that we have, I think that we can grow in some segments.

For instance, in credit cards, our participation is much less than the fair market share than we should have given the size of our operations. 26:21 So, I think there are interesting credit opportunities for us in the market, but for the market as a whole, as you mentioned, I think that giving the prospects are possible for withdrawal from the pension plans, what we will see is that continuous liquidity on the market and a lower aggregate growth.

26:44 If we especially consider what is the long term elasticity of credit growth compared nominal GDP, I think that will be below that, but then again, I think that we were able to take share from consumer credit in the last few years and our ambition is to continue to do so in the next few years. I don’t know Alonso if I answered your questions?

27:12 Yes. Gabriel.

Thank you very much.

27:22 Yes, hi. Hi, Gabriel.

I have two questions. My first would be if you can provide an update on the capital raise and then with that new capital talk about obviously the use of funds we know you're going to buy the stake and the intention is to buy the stake in the Colombian, I feel Colombia that you don’t own, and then with that new capital, if you can talk about forward looking profitability level, sustainable profitability levels in Chile and Colombia?

We’ve seen, obviously the nine months looks great so far on some metrics, but we wanted to get your views? Thank you.

28:09 Sure. Thank you, Jason.

As we mentioned the capitalization process, the capital position that we have at Itaú Corpbanca is something that we have been discussing with the market in the last few years and how we were going to do the conversions to the meaningful capital levels with implementation of the Basel III in Chile at the end of twenty twenty five, the implementation. 28:40 So, the capital increase that we are doing here, I think it helps us in three different phases or – not phases by objectives.

The first one is for us to do through convergence to the peers that we have on the market. So, when we take a look at the capitalization levels, on an aggregate level it generally is something between nine percent to ten percent for the largest banks.

So, I think it is important for us to do this convergence and the course the capital increases is an important step on that phase. 29:22 The second one is as you mentioned, the acquisition of the participation that we don't have in Colombia.

That's an obligation that the bank has since twenty fourteen when the merger of Itaú Chile and Corpbanca happened and we intend to do that at the beginning of next year. 29:43 And the third point, it has to do will all the investments that we are doing in technology to digital transformation that we are doing for the bank.

At the end of the day, you have a more sustainable capital base will enable us to continue the level of growth and investments that we've been doing in the last few years. 30:05 In terms of profitability, if you take a look at the returns that we now have, we never said that we would sustainably have the results nineteen percent to twenty one percent that we are seeing in Chile, especially because with higher level of capital that will be diluted.

So, the expectation that we have is to, after the capital raise having a target between thirteen percent and fourteen percent return on a consolidated basis return on tangible equity. That means a little bit more in Chile, a little bit less in Colombia, but on a consolidated basis that's our target.

30:51 If you take a look at the growth that we have, the normalization of the cost of credits that we have, the discipline only costs that we are having and project that real time, probably you are going to see an impact similar to what we are talking about. So that's at least, it’s our expectations, it’s where we will been positioning the banking investing in the last months.

31:17 That's very helpful. So, just to confirm, at the consolidated level of both Chile, Colombia, target medium term, thirteen percent to fourteen percent return on tangible equity and in Chile higher and in Columbia lower than that.

31:31 Yes. We think that we can achieve the plan that we have for Colombia is that we should be able to achieve our cost of equity in Colombia close to thirty six months from now from eighteen months from now, probably we are at sixty percent of that target converting fully in thirty to thirty six months to our cost of equity.

In Chile, we will operate a little bit higher than that.

32:02 Thank you very much.

32:03 Sure.

32:21 Fantastic. Thank you so much for conference call.

And if you have further questions, Claudia, Rodrigo and I are always available for you. Take care, we will see you next quarter.