Banco Santander Chile (BSAC) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Banco Santander Chile earnings conference call. My name is Jasmine, and I'll be your operator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to hand the conference over to your host for today, Mr. Raimundo Monge, Corporate Director of Strategic and Financial Planning. You may proceed, sir.

Okay, thank you very much, and good morning to all ladies and gentlemen, to Banco Santander-Chile's Fourth Quarter and Full 2009 Results conference call.

As stated, my name is Raimundo Monge, and I'm Director of Strategic Planning at the Bank, and today with me I'm joined by Robert Moreno, Manager of Investor Relations.

Page three of the webcast, please. Thank you for attending today's conference call in which we will discuss two main points; first, a summary of Santander-Chile's strategy and main results during 2009, a period in which although we faced a difficult operational environment, we could deliver relatively strong results in terms of profitability, efficiency and improving asset quality which allowed for resuming growth in our retail segment during the second half of the year.

Secondly, we will share with you on our views about the economy, the financial system and the Bank's growth potential going forward. Afterwards, we will be happy to answer your questions.

Next page. Regarding the first point of the presentation, the positive evolution of our results in 2009, we believe our solid performance has been closely linked to the thorough execution of the Bank's strategy.

As we have discussed with you in several previous earnings conferences, this strategy was designed to maintain a strong profitability, even in a weaker operational environment as we have been going through in the last five to six quarters.

As you might recall, the Bank's main focus was to sustain high levels of profitability by centering on four main objectives. The first one was to actively manage our balance sheet in order to counterbalance two important negative forces; number one deflation, and second, asset quality deterioration.

As a consequence, we've been focusing on increasing our loan book, mostly in the lower risk segment. We have increasingly selectively [sic] our spreads, and we have strengthened our capitalization ratios.

Our second strategic focus has been to proactively manage all our risks and increase our recoveries. The Bank took a number of actions in 2008 and early 2009 in order to curb the provision expense. These actions started showing their first results in the second half of 2009, when asset quality and our provision expense has been -- and since then, our asset quality and provision expense has been steadily improving.

The third strategic goal was to increase our fee income. Despite low internal consumption and some regulatory issues, the Bank has been focusing on increasing cross selling and boosting product usage to extend our fee income.

These efforts have been especially relevant to increase the use of credit cards, insurance products and asset management, which have boosted fee income, despite higher unemployment and lower spending throughout the year.

In line with our last strategic objective, the growth rate of operating expenses was effectively curbed in the quarter, and the Bank is achieving a record high level of efficiency. Cost control and increasing productivity continue to be one of our main competitive advantages.

Next slide, slide number five. As stated, in 2009, the Bank had a solid and improved performance, despite the weaker economic environment. Net income attributable to shareholders totaled CLP431,253 million. This is equivalent to CLP2.29 per share, and $4.69 per ADR.

Net income increased 3.9% year-on-year due to a 6% increase in gross income net of provisions and operating costs, a measure of our recurrent net income. This represents an ROAE for the year of 28%.

Net income increased 31.4% in 2009 compared to non-restated 2008 net income. This growth of 31.4% is relevant for shareholders because dividends should grow accordingly as long as the payout ratio is kept constant in 2010.

In 4Q '09, net income attributable to shareholders totaled a record high level of CLP137,309 million. That is CLP0.73 per share, and $1.49 per ADR. These results represent an increase of 24.6% to 3Q '09, and an increase of 46.6% compared to restated 4Q '08 figures.

Adjusted for the one-time pretax income of CLP15,686 million in the quarter, net income increased 13.1% q-on-q, and 32.7% year-on-year. With these results, the Bank's ROE in the quarter reached an all-time high level of 34.1%. The 4Q '09 ROEA adjusted for the one-time income reached 30.9%.

Next slide, slide number six.

In 4Q '09, total loans increased 1.1% q-on-q, led by a 3.1% q-on-q increase in retail loans. The pickup in economic growth has led to a rebound in loan volume, especially in higher yielding retail banking activity.

The lower interest rate and inflation environment and renewed consumer confidence also boosted loan demand. The rapid improvement in asset quality has also allowed for a more aggressive expansion of retail lending.

Corporate lending decreased 15% q-on-q, and 47.3% year-on-year. Despite a stronger economic outlook, the Bank maintains its strategy of focusing on profitability over market share concerns. Accordingly, we have been focusing our commercial efforts on non-lending activities which generate a greater pool of revenues from these clients.

This is reflected in our fee income, gains from financial transactions, and the positive evolution of non-interest bearing liabilities. In 2009, net income from our Corporate Banking business was up 11.9%.

Next slide.

The improved market picture, especially in the second half, resulted in lending to individuals increasing 3.5% q-on-q in fourth Q '09, led by a 6.6% q-on-q expansion in loans to high income individuals.

Loan growth to middle and lower income individuals increased for the first time in 2009, expanding 1.2% q-on-q. Lending to SMEs continues to be another area of positive growth, increasing 2.5% q-on-q in the last quarter.

Next slide, page eight.

Net interest income decreased 4% in 2009. The positive impact of the better loan mix, and the differentiated expansion of spreads, was more than compensated by the negative inflation seen in 2009.

The Bank maintains long term assets, mainly medium and long term financial investments, which are denominated in Unidades de Fomentos, UFs, an inflation indexed unit, and are partially funded with nominal or non-interest bearing peso short term deposits. When inflation is negative, this mismatch compresses margins, and vice versa.

As inflation normalized and the asset mix began to improve, margin once again began to rise. The Bank's net interest margin reached 5.8% in 4Q '09 compared to 5.7% in 3Q '09. At the same time, net interest income was up 3.7% q-on-q in fourth Q '09. Net of provision expense, net interest income was up 14.1% q-on-q.

Next slide, page nine.

The increasingly high ROE shown by the Bank in the last quarters has been achieved despite having one of the highest levels of capitalization in the Chilean financial business. As of December 31, 2009, the Bank's BIS ratio reached 15.6%, and its Tier 1 ratio, which is 100% core capital, stood at 11.7%. This strong capital base allows the Bank to maintain the highest risk weighting for any company in LatAm, while at the same time, being a strong base to support future growth in the Bank, and to maintain a relatively high payout ratio going forward.

Next slide.

In 2009, asset quality was a major issue for the Bank and its second strategic goal. In 2008 and early 2009, Santander-Chile implemented a number of measures to control asset quality deterioration.

Firstly, the focus on 2008 and the first half of 2009 was on selective loan growth, which resulted in a relevant factor in reducing asset quality pressures.

Secondly, the weighting of recoveries and other preventive measures to control asset quality in commercial teams variable incentives was increased significantly. Commercial teams at the branch level became responsible for the performing portion of their loan book, and the frontline first 89 days of their non-performing portfolios. These also helped to contain asset quality as well throughout the year.

As a result, provision expense and risk levels showed a positive evolution in the second half of the year. In 2009 as a whole, provisioning expense increased 15.9%, but in the fourth Q of '09, the Bank's net provision expense decreased 14.4% q-on-q, and 18.9% year-on-year. This was mainly due to an improvement in asset quality levels among individuals, which represent more than 80% of charge-offs. As a consequence, result -- as a consequence, charge-offs in the quarter decreased 25.2% q-on-q, and 35.4% year-on-year.

Next slide.

Despite lower levels of provision in the second half, coverage of non-performing loans steadily improved throughout the year, a further reflection of the improvement in asset quality. Noteworthy was the 199% coverage of consumer non-performing loans that represent more than 70% of the charge-offs of the Bank.

The relatively low coverage of residential mortgage is mostly due to the low expected losses seen and expected for that business. The residential real estate market has seen no relevant deterioration in 2009, and most analysts expect a growing market for 2010.

Next slide, page 12.

In 2009, despite the decline in internal consumption levels and some regulatory changes that resulted in a 17% contraction in fees from checking accounts, fee income continued to grow, fueled by increases in product usage and cross selling.

Net fee income in 2009 increased 4.5%, with a positive sequential trend. The most important driver of fee income growth in 2009 was credit card fees, which jumped 18% in 2009. The rising fees from this business reflect the increase in use of the Bank credit cards, mainly as a result of the launching of new, successful credit card products in 2009. At the end of the year, the Bank, with 33% of all banking credit cards, generated more than 38% of all the monetary purchases.

Next slide.

Santander was the most efficient bank in Chile in 2009, achieving an efficiency ratio of 32.2% for the year. That is almost 1,900 basis points lower than the efficiency ratio of our main competitors.

In the fourth Q of '09, our efficiency reached a record-high level, with our cost income ratio reaching 30.5% compared to 32.6% in 4Q '09, and 36.6% in 4Q '08. The main driver of this higher level of efficiency has been greater productivity of our workforce through better use of our IT platform; greater usage of alternative channels by clients, especially the Internet; and increasing the profitability of our bricks and mortar branch network, of which 40% has been open in the last three years.

Next slide.

In summary, 4Q '09 and 2009 results were positive, especially considering the adverse environment we face, and Santander outperformed the rest of the market in this period. Our high client margins, conservative asset quality policies, solid fee income growth and world-class efficiency, we believe, give us a clear, competitive advantage in the local market, allowing the Bank to more than double the return on capital of the rest of our competitors.

Next slide.

This solid performance was achieved while maintaining an adequate relationship between risk and return, as reflected in our superior return of capital and stronger capital ratios as compared to our main competitors.

Next slide.

Going forward, we believe the Chilean market offers strong growth potential, and that Santander-Chile is in a rather unique position to take advantage of this higher growth environment.

Next slide. You should be on page 17 of the webcast.

Chile's economic fundamentals and outlook remain solid, and the macro outlook is steadily improving. GDP expansion in the fourth quarter surpassed market expectations, as renewed consumer confidence, better external conditions, low internal interest rates, and improvements in employment levels have stimulated growth.

Next slide.

In this scenario, we expect the growth in 2010 to be around 5.1%, with an important recovery of internal demand and real wages, which is a critical element for loan growth while interest rates should remain low as inflationary pressures remain subdued and the Chilean Government should no longer be running a fiscal deficit throughout the year.

Next slide.

In 2010, as economic growth gains momentum, loan growth should also pick up. In real terms, loans in Chile have tended to increase at the rate of 1.5 times up to 1.8 times GDP growth in the last nine or 10 years, very much in line with the expansion of internal demand. Accordingly, we expect loan growth to expand around 8.4% in real terms in 2010, which should be close to our nominal 11% expansion of the loan market, given inflation expectations.

Next slide.

With this background, we believe Banco Santander-Chile is the best positioned to benefit from this favorable outlook. We have the largest banking franchise in Chile, with a leading position in retail banking, client base and distribution network. We are not only number one in retail banking, but have some considerable distance over our closest competitors.

We also have a strong capital base, which gives us ample capital to support future growth. Therefore, we see ample room for exploiting and growing the revenue potential of our current client base. We have more than 3 million clients, of which only 20% meet our cross selling standard.

Growth will also come from our alliances which we have been setting in the last years, and our very efficient manner to grow on our client base. In 2009, our alliances with corporate clients and universities had given us access to around 7 million potential clients. In 2010, we should tap into this large pool of potential and new clients.

Our large branch network will also allow us to grow without making intensive additional investments. We also continue to push our alternative channels, which are rapidly becoming the Bank's fastest growing distribution channels.

Next slide.

All these elements make us to be positive about the Bank's future growth and outlook. At this time, we will gladly answer any questions you might have.

(Operator Instructions). Your first question comes from the line of Esteban Polidura of Merrill Lynch. You may proceed, sir.

Thank you, and good morning, Raimundo and Robert. I have two questions, if I may. The first one, are you expecting more sales of charge-off loans and assets?

And the second is, do you expect provisions to continue dropping throughout the year?

Thank you.

Okay. Regarding the first part, the sales of the charge-offs. As we have been claiming in previous earning conference calls, our current policy is to focus on the short term delinquency levels from day one up to 180 days or so. From then on, the marginal revenue you get on the effort is lower than the margin of cost that you have to incur.

So what we do is, every once in a while, we accumulate loans that are beyond that delinquency period and try to sell it, because there are some entities that are specializing in late term delinquencies and are more efficient. Therefore, they pay us a price, which is higher than what we collect by our internal efforts.

So our focus has been to manage all the early delinquency levels and sell the medium term or long term delinquency problem loans, yes? And by that effort, we don't immobilize assets or capital, and at the same time, we generate a high level of profitability.

So every once in a while, we accumulate a certain amount of bad loans, charge-off loans, and we get rid by means of an auction process that we have been doing that for two years now, and probably is the way to proceed going forward.

In terms of the provisions, I would say that the trend should sustain. The good news comes mostly from our more thorough recollection and more thorough follow-up in terms of delinquencies. We have been in the last nine months advancing a lot in terms of early symptoms that make us believe that the client will face some difficulties. And once you talk with the client and give some breathing space, the level of delinquency can be very much reduced.

And also, the macro picture is much encouraging [here], and that's why we believe that those two are positive drivers of provisions decreasing, as we have seen in the second half.

And the negative force comes from some changes that the Superintendency has been enforcing, which today is most uncertain because the discussion on those -- the new norms has been postponed up to July of next year. But that is -- if things go as currently are planned, will have a drag in terms of how provisions can come down, because we will be provisioning things, especially at the corporate level, that today you were not -- you didn't need to provision.

So that's why net-net we think that provision will be a driving force in 2010 results, but they are -- well, as usually, negative and positive forces, net-net we think they will be -- the level of provisions will be lower than in 2010 -- in 2009.

Excellent. Thank you very much, Raimundo.

Your next question comes from the line of Saul Martinez of JP Morgan. You may proceed.

Hi. Good morning, Raimundo and Robert; two questions. First of all, this seemed like a more normal quarter in terms of the inflation that you've seen. I think we've seen 50 basis points positive inflation. And you generated a core recurring ROE in the neighborhood of 30%. For the whole year, we had mostly deflation, and your profitability for the whole year was in the high 20% range.

You obviously have some things that may have helped you that won't help you in the future. But what is this kind of profitability in a deflationary environment; the ROE and a modest inflation environment in the fourth quarter? What does this mean in terms of what kind of profitability, what kind of ROEs you guys feel you can sustain in the coming years?

And I have a follow-up question as well.

Okay. Well, the impact of inflation, as we have discussed before, is usually positive for banks in Chile, because you have a larger proportion of your assets that is adjusted by inflation as opposed to the proportion of your liabilities which are affected.

So whenever inflation is low or positive, it's good news, and when it's negative, as it was the case in 2009, especially in the first seven months/eight months, that is bad news because you don't -- it's not that easy to close all the gaps that you have. And in a near term perspective, it doesn't make sense to fully close all the gaps that you have.

So going forward, as you mentioned, we are expecting inflation in 2010 to be a more normal 2%/3% and, therefore, that should be beneficial for our bottom line performance and for our ROE.

However, take into consideration that the Bank, as part of the assets and liabilities managed, to some extent hedged our results in the first six months to not be fully impacted by the negative inflation. So this is a gap that although you don't close it fully, you can manage it. You expand it or you reduce it proactively in order to maintain your profitability.

So our profitability going forward, although benefited in net terms, shouldn't be jumping up as you would expect because although we had an impact in the net interest income line which is very clear, and there's a high correlation between inflation levels and net interest income levels, there were some compensating profits in the other side of the hedge, which are reflected in our financial transaction, especially the proprietary trading part, which is the other leg of the hedge.

So going forward, although we will have a positive impact whenever inflation is positive, or hopefully high, in the net interest income line, you won't have the other parts of the hedge because the hedge is not already in force.

So you will have good news in the net interest income line, and also, you won't have -- you won't be able to repeat the good prop trading gains that we saw in the first half of the year, simply because we don't have a hedge today as we're expecting inflation to accelerate.

So in terms of bottom line, it should have a moderate impact in terms of -- well, make it more easy to sustain the levels of ROE that we saw, but it shouldn't be a big difference, because to a big extent, inflation was -- the impact of inflation at the bottom line was hedged by using, well, financial instruments. Yes?

Although presumably, you can change your hedge position to benefit from inflation as well?

No, absolutely. Given the commercial -- remember that the Bank, by its sole commercial growth, is usually opening that gap, yes? The majority of the loans higher than one year are usually linked to inflation. So as we have been starting to grow, especially in mortgages and in consumer lending which usually are two years/three years/four years, and mortgage up to 20 years, that produces that the balance sheet of the Bank, the inflation sensitivity naturally expands because you increase your assets and especially lending that [leads extensively] to inflation, and your funding is mostly short term and peso denominated.

So the decision that you take once in a while is whether to leave that gap to open and, therefore, benefit in a higher inflation environment; or, as we did last year, to close the gap by means of generating our reverse position with derivatives or other hedging mechanisms that are available.

So now that we expect inflation to start normalizing, of course, the gap will normally expand because we are growing, and because we expect inflation to be positive and starting to normalize. And that's why the beneficial impact of inflation will be seen in the net interest income line.

However, in order to make comparisons on the first half of 2010 vis-a-vis the first half of 2010, keep in mind that we make profit in the other side of the leg. In theory, it should be linked in the same line because it's like a hedge. However, because of accounting treatment of the hedge, the negative part in the net interest margin line, the positive part in the financial transactions part, in 2010, probably we'll see good news in the net interest income because of inflation. However, you won't have the profit we made in 2009 in the financial transaction side.

Got it. Just a follow-up question on the new reserve requirements. Do you have an estimate of what kind of impact that will have, both in the January results, assuming that the July -- that the regulation or the new norm standard that is, what the impact could be starting in July?

Okay. In terms of the impact in the January, it will be around CLP37,000, but that is counted against equity because it's a one-time change of the regulations. So it won't be shown in the profit and loss payment of January or throughout the year, yes?

Regarding the second part, it's more difficult to give you a precise answer because of the following. We had some calculations, early calculations that were done using August figures; August 2009 figures. However, given that the -- well, the banking industry had some comments to do to the Superintendency, and the Superintendency took those commentaries, the cut-off date will be July of next year.

So many things will be changing in the meantime, and that's why it's probably too early to give you a firm favorite whenever the situation is confirmed because we think that there are a number of good reasons to change part of the -- or the industry claims that there are good reasons to change part of the new regulation.

We will be able to give a more firm -- and probably that should be in the second -- in the first few conference calls. Today, it's a little bit too early because the nature of the loans has completely changed. Banks, of course, are managing that the loan book to reduce as much as possible the impact of the new changes, and that's why it's probably too early. However, the part that has already happened is CLP37,000 we discounted against equity.

Okay. All right. Fair enough. Thank you very much, Raimundo.

Your next question comes from the line of Jason Mollin of Goldman Sachs. You may proceed.

Hello, Raimundo, Robert, and everyone on the call. Raimundo, you mentioned the reduction in provision expenses, and you showed it in your results quarter-on-quarter. And you showed in the presentation, as well as in your release, an increase in reserve coverage of NPLs from January 2009 to December 2009. However, quarter-on-quarter, we saw a decrease in reserve coverage of about 300 basis points to 85% of NPLs, and the ratio of NPLs to total loans actually increased 20 basis points to 3%.

Can you talk about the movement in the quarter to see if we -- because you're talking about improvement in asset quality in general terms, but in the quarter, did we actually see some deterioration there? You had very strong loan growth, so I don't know what could be impacting the ratios there.

Okay, no. A [security] point; we saw a certain deterioration of coverage in the last q. That was mostly concentrated in the corporate side, especially middle market, yes? What we have been doing is usually at the end of the year, you stress as much as you can your loan book in order to have a very clean following year.

So in the mid-side, remember that we have still -- there are many sectors that are sensitive, for example, to the dollar; that given the appreciation of the Chilean peso could be facing some difficulties going forward. And that's why we prefer to have a -- it's part of our ongoing management of asset quality. You prefer to have -- to anticipate bad news until you wait.

Remember that throughout this downturn, the middle market has suffered very little. Most of the deterioration has been on consumer lending, credit cards, and so up to now, all our problems were concentrated in the consumer lending part, mostly consumer lending part, in the middle to low end of the consumer market; very little deterioration in mortgage, and very little deterioration in the corporate side. So now that we are relatively comfortable with the evolution of asset quality in the individual segments, both at Banefe and at the Bank, we are making a more stricter review of clients.

And some clients on theory, given the appreciation of the Chilean peso, could be facing difficulties going forward. And that's why marginally you prefer to take -- to downgrade some [dollars] in those companies or sectors and, therefore, we're waiting for the actual 2009 income statement and balance sheet figures for these clients in order to go back to the previous qualification.

It's simply part of the macro management. We don't think it's a trend. It's simply that all our efforts have been focused on retail, and there we have up to now post good news. Since more or less June we have a steady decline in charge-offs and a steady decline in terms of the delinquency levels.

And now we are focusing on the middle market, to some extent proactively, because the macro situation is improving. But it's simply that certain positions are sensitive to the US dollar and they are mostly exposed dollars, [etc]., and, therefore, we thought it was the time to be a little bit conservative about those companies that haven't -- not shown any relevant deterioration. But the compound effect of one year or so with a stronger currency could have an effect going forward.

And we're waiting until we have the balance sheets for the year to -- either to confirm that feeling, or simply to say, okay, it was not needed.

But then you also reversed provisions in the quarter, correct? There was an extraordinary reversal of provisions in the quarter. Was that not -- that was for, let's say, the individual segment?

No. Probably what you're meaning is that in the non-operating income, we reversed the position. That is simply -- we took at the beginning of the year some non-specific credit provisions that we had been allocating to specific positions, yes? That has been done both in the retail and in the corporate side. But the net provisions were positive for the year, and the only thing is that we think the different clients, we have seen more downgradings in the middle market. Companies that are exporting to other markets, that some of them we have the feeling that could have an impact because of the appreciation of the Chilean peso which has been very steep and, therefore, can produce some difficulties going forward.

Just to ask a follow-up question another way to make sure I understand. If were to look at the NPLs for total loans for individuals, they would have improved quarter-on-quarter? Is that correct?

The NPLs of an individual, I think, were more or less stable, or improving and, therefore, that's why the charge-offs have been coming down. So basically what happened in the quarter was we increased our provisions, our gross provisions on the commercial loans in line with an increase in the risk index of middle market clients, but the risk index in consumer lending, a reflection of less deterioration, came down and, therefore, we did less charge-offs. That's how you should look at it.

Okay, that's very helpful. Thank you very much.

Remember that in Chile, provisions must be set according to expected loss that you foresee more than -- I mean, actual non-performing status is one of the elements you take into consideration in setting the provisions. So that's why in this quarter, in the middle markets, we simply increased expected loss because of the, all the, among other elements, the tightening of the margins due to the appreciation of the Chilean peso.

If we have information that these companies have been unaffected, their profitability is strong, etc., because of higher efficiency, whatever, we can reduce that expectation of potential losses because of the appreciation of the peso.

It's simply that you prefer to be conservative. We have been very conservative in the retail part, and in the corporate side because we haven't seen any major difficulties up to now, we thought it was the time to increase a little bit the conservative-ness in those provisions. And once we have more information about the actual results on 2009, well, we can easily change that expectation.

Very helpful again. That's very [interesting].

And that's why coverage has increased because we're setting provisions, although the position is performing.

I know, but that actually is why I was a little -- I was surprised on a quarter-on-quarter basis that the coverage actually fell 300 basis points. But I think I understand that you're seeing the deterioration in the middle market segment, not in the individual segment in that --

I mean, do you have better guarantees? Why did the coverage -- why did you feel comfortable with the coverage falling on average from, I think it was [88] to [85] then?

Because of the guarantees, the collateral you have in the middle market. Okay?

Okay, very helpful.

(Operator Instructions). Your next question comes from the line of Tito Labarta of Deutsche Bank. You may proceed.

Hi. Good morning, Raimundo and Robert. You mentioned you expect loan growth of around 8% for the year. I was wondering could you give some more color by segment. If we look at the fourth quarter, retail lending expanding but corporate lending actually fell quite a bit. I just wanted to get a sense of how you see that mix going forward, and also how will that impact your asset quality by growing the different segments at different levels.

And then if you could also maybe give some color on fees and expenses going forward.

Thanks.

First of all is that the growth that we are [hinting] is the growth of the market. As you know, Santander, we don't have [split in] targets of the market share growth. Simply we grow as much as we can, given our profitability targets, yes?

So if we see rational prices, we can grow very rapid and in line with the market. If, for example, in corporate lending we are seeing spreads again very tight, and that's why we have simply let go a big chunk of that business.

But to answer your question, we think that consumer lending and mortgage will be the driving force in the first half, and probably in the second half, we will see it growing on a year-on-year basis at a rate of 12%/13% in nominal terms, each. It could be a little bit lower mortgage a little bit higher consumer, but something around 12%/13%.

And then corporate lending will be dragging, we believe in -- well, we expect in the first half, and probably gathering momentum in the second.

What happens is that companies, at the beginning of the recovery phase, usually take, to some extent, a lag in terms of growth because they prefer to use their capacity fully before expanding plants and increasing their equipment etc., etc.

So usually in the recovery phase of a cycle, you see consumers rapidly coming back to the market because the job outlook, the salary outlook improves very rapidly, and the confidence surveys are showing that consumers are quite optimistic about jobs and about income. And, therefore, there should be the growing force in the first half, followed by corporations, which usually take more time to -- they prefer to fully use their capacity and only then [come].

So that's why we think that on a year-on-year basis, retail growth of 11%/12%, and mostly leaded [sic] by consumer lending, and corporations growing 8%/9% with a very different, much rosier picture in the second half than in the first.

In terms of fee income growth and cost, in terms -- and now I'm talking about ourselves, not the market, fee income this year grew 4.5% despite being -- we saw a decrease of aggregate amount of around 7%. We expect next year internal demand to grow [mostly] around 7% in real terms.

So that will be a positive force because the more people spend, the more they use payment methods that generate fees, and more people save, etc.

So we think that fees should go back to lower teens levels; 10%/12%/11%, it's difficult to know, but there will be some lines that will be growing very rapidly, especially credit cards, insurance and asset management, yes?

In terms of our costs, we have been containing costs and -- but focusing on productivity gains this year. From now on, we will see some increase on costs, but the fact that we mentioned in our release that we are growing in terms of client base, mainly through alliances and not one by one, and the fact that we have a relatively young client base makes us believe that we can increase our level of activity and have a relatively healthy top line growth without a big increase of costs; 4%/5%, or something like that at most, which is a little bit ahead of inflation.

Right, thank you. That's very helpful.

As there are no further questions at this time, I'd like to turn the call back to management for closing remarks.

Okay. Well, thank you all very much for taking the time to participate in today's call. We look forward to speaking with you again soon. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for attending. You may now disconnect. Have a great day.