Banco Santander Chile (BSAC) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Banco Santander Chile Conference Call. My name is Carmen. I'll be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions). Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host for today, Mr. Raimundo Monge, Corporate Director of Strategic Planning. Please proceed.

Thank you very much. Good morning ladies and gentlemen. Welcome to Banco Santander Chile's Second (sic) Quarter 2011 Results conference call. My name is Raimundo Monge, and I'm Director of Strategic Planning, and I'm joined today by Robert Moreno, Manager of Investor Relations.

Thank you attending today's conference call in which we will discuss our performance in the third quarter. Following the webcast presentation, we will be happy to answer your questions.

During the third quarter of 2011, market conditions changed considerably following the turmoil in the Eurozone, and the threat of another global recession loomed. Consequently, we have lowered our outlook for growth in 2011 but, in relative terms, the Chilean economy should continue to grow at a healthy rate of around 4.5% next year.

Chile continues to have strong fundamentals, with a strong internal savings rate, representing around 24% of GDP, and a position in its fiscal balance that is very healthy, being among the few countries to be a net creditor, having more financial assets than debt, representing around 8% of GDP.

At the same time, inflation remains under control, and the central bank is expected to relax its monetary policy to boost the economy if the situation eventually deteriorates.

For these reasons, we have not altered our general strategy for the next two years. We remain committed to deepening our focus on commercial banking, including client relationship management, improving productivity, and managing risks conservatively with the goal of sustaining high growth rates and ROEs.

In the short-term, though, we adopted certain precautionary measures in 3Q '11 to prepare the Bank for the possibility of a further deterioration of the external risk scenario in which GDP growth falters and commodity price falls significantly. This is very similar to the approach we followed in the 2008-2009 period which, at the end, resulted in our ability to sustain performance even in a worsening macro picture.

The Bank has focused on four main points in the quarter, in order to maintain sustainable levels of profitability and efficiency, even if the market instability continues into 2012. Number one, we have strengthened our capital base. Number two, we have focused on the growth of our core deposits and our liquidity. Number three, we have grown selectively on the lending side, and we have put great effort to increase our spreads. And, four -- we have followed prudent credit policies.

These measures, together with the lower inflation rate, higher market volatility, and several non-recurring items in the quarter, hurt the Bank's profitability in the period. But, we believe the medium-term prospects of our operations remain intact. Let it be said that as soon as we see an improved outlook, we can easily change this conservative approach.

Concerning our focus on core capital, the Bank implemented a series of measures to boost its core capital ratios by optimating and lowering the growth rate of risk-weighted assets. The Bank's core capital ratio reached 10.2%, increasing 40 basis points q-on-q. As a result, the Basel ratio reached 13.9% as of September 30, 2010 (sic - see press release), compared to 13.4% at the end of June. The Bank currently has one of the highest levels of core capital among the Chilean financial system. Growth in common shareholders' equity is the sole component of our Tier 1 capital.

Secondly, the Bank has been, as has been the case throughout 2011, focused on increasing its core deposit base. Total deposits increased 4.4% q-on-q. Core deposits, which includes all non-institutional deposits, expanded 6.9% q-on-q, and 30.9% year-on-year. The Bank's loan-to-deposit ratio, measured as loans minus long-term bonds that fund long-term mortgages, improved to 94.8% as of September 2011, compared to 100.9% twelve months ago.

The Bank's market share, in terms of total deposits, has increased 36 basis points in the last 12 months, to 18.7%.

Throughout 2011, funding cost in the banking system has risen due to high short-term interest rates, but the Bank's funding costs have increased at the slower pace, given our focus on core deposit growth. We have currently opened a gap of 20 basis points on average cost of funds, compared to the rest of the Chilean banking system.

In the quarter, the Bank's deposit base increased at a faster pace than its loans. This additional liquidity was temporarily invested in Chilean sovereign risk. The Bank's surplus liquidity, defined as financial investment minus non-structural liabilities, averaged US$3,000 billion (sic - see press release) in the quarter.

In the third quarter of '11, the Bank has been growing more selectively in the lending business, while continuing to focus on retail lending activities. Total loans increased 1.5% q-on-q, and 16.1% year-on-year. This loan growth was led by lending to the middle- and upper-income individuals, which expanded 2.2% q-on-q.

Lending to Santander Banefe was slowed in the quarter, and grew 1.3% q-on-q. Lending to SMEs, small- and middle-size enterprises, led growth in the retail lending and expanded 2.8% q-on-q. In the middle market, loans grew 2.9% q-on-q. This year, the Bank is obtaining attractive returns in this segment of mid-size companies, given the positive evolution of credit risk and spreads.

Additionally, in the quarter, inflation fell to one-third of the previous-quarter level. As the Bank has more assets than liabilities linked to inflation, the decline in inflation placed pressure over margins. Given the depreciation of the peso in the past month and the high level of inflation that already happened in September, we are expecting a valuation of US inflation to be around 1% for the quarter, which should be supportive for our margins in the fourth quarter. Let it be said that for every 100 basis points change in inflation, our net interest income increases by approximately CLP25 billion.

We also believe that short-term interest rates should not be rising, and possibly falling, in 2012, which should also be positive for our funding costs.

As a result of our focus on liquidity and the lower inflation, net interest income and margins contracted in 3Q '11. The negative effects on margins were partially offset by rising loan spreads. This indicator excludes the impact of mismatches in inflation-indexed assets and liabilities. Loan spreads in the quarter began to rise as the Bank implemented a stricter pricing policy. This should also help to sustain or improve margins in coming quarters.

Our fourth area of focus in the quarter was credit risk. On a year-to-date basis, net provision expense has increased 7.6%, compared to 16.1% growth in lending volumes. And, therefore, asset quality has remained relatively stable.

In the third quarter, provision for loan losses in the quarter increased 58.9%. As described in our earlier release, this quarter's provision expense includes CLP19.2 billion in non-recurring provision expenses. Among other things, this included the strengthening of the residential mortgage provisioning model, which we announced in our second Q '11 earnings report. This signifies an additional provision expense of around CLP10,000 million in the quarter.

In the fourth quarter, the Bank will conclude the process of overhauling its provisioning models, by switching to a full-credit scoring model for SMEs. This current model will calculate provisions based on risk profiles, similar to the models now used for consumer and mortgage lending. This model will also allow a quicker approval rate from credit risk area to commercial teams, as approvals will be automatic.

Excluding all the one-time items we have already mentioned, the adjusted provision expense was approximately CLP70,000 billion. This high provision expense was mainly due to the expansion of our lending volumes, especially consumer lending, and a more prudent credit risk policies implemented in light of a possible deterioration of the macro environment. This included restricting renegotiations and, therefore, increasing charge-offs.

This also resulted in a temporary rise of non-performing loans but did not affect the Bank's risk index. The risk index, which measures the percentage of loans the Bank must provision for, given its internal models and the Superintendency of Bank guidelines, remained stable q-on-q at 2.94%. We are required to have 100% coverage at all times of this risk index.

Non-performing loans ratio as of September, 2011, reached 2.8%, and the coverage ratio of non-performing loans reached 104.8% at the end of September.

The Bank's client base, especially cross-sold clients, continued to grow at a solid pace. The amount of cross-sold client is growing about at the pace of our total client base. Credit cards continue to be the fastest growing product, the number of which has increased 12.7% year-on-year. The amount of cross-sold clients, the most profitable part of our client base, has grown 14.6% in the last 12 months.

Despite the positive evolution of our client base, net fee income was down 8.4% q-on-q. The main reason for this decline was the temporary slowdown in loan origination, which had a negative impact on loan-related insurance premiums. At the same time, the weaker market negatively affected our mutual fund fees and fees from securities brokerage.

The growth of costs also slowed in the quarter. The Bank is (inaudible) certain IT projects to enhance productivity and continued forward with these initiatives in the quarter, given the importance for improving efficiency in future periods. Operating expenses in 3Q '11 increased 2.6% q-on-q. The efficiency ratio reached 41.3% in 3Q '11.

The 4.6% q-on-q increase in personnel expenses was mainly due to the increase in the headcount and a rise in severance payments. Headcount increased 1.6% q-on-q. Of the 190 persons hired in 3Q '11, 160 were collection agents.

Administrative expenses fell 1.2% q-on-q as the Bank started to implement a stricter stance regarding costs. At the same time, the Bank continues with its projects of investing in technology and alternative distribution channels to enhance productivity in future periods. The Bank opened 7 branches in the quarter, 4 of which were Banca Prime branches for servicing the upper-income individuals.

In summary, the quarter was a challenging one. The Bank achieved ROE below its usual level, but did due in part to our quick reaction to a significant reversal in the growth, strength, and outlook. For this reason, in the quarter, we placed our efforts on improving our core capital levels, improving funding mix, controlling our cost of funds, bolstering liquidity levels, growing selectively, increasing spreads, and enforcing more prudent credit risk standards.

For these reasons, going forward, we believe the Bank is prepared for sustained profitability even in a more challenging environment. Our central scenario for 2012 is sound, and we think our strategy will allow us to continue being the market leader in retail banking.

At this time, we will gladly answer any questions you might have.

(Operator Instructions). The first question comes from the line of Carlos Herrera from Barclays Capital. Please proceed.

I would like to ask you two questions. The first one is -- how is credit risk evolving at Banefe? How is NPL ratios there? Is it far-moving? -- far? -- about the consumer loan portfolio? And, how do you see profitability in that consumer finance division? That's the first question.

OK. Concerning asset quality trends in Banefe, in the margin, the asset quality has been deteriorating -- nothing that we are concern. Remember, that after the improved -- the upgrade of our provisioning models, we have taken provisions in advance. As you remember at September last year, we changed the model for consumer lending, and that's why, today, we have a coverage ratio that is quite comfortable.

Nevertheless, we have been putting more stricter standards for approval of the new loans that we are originating, especially taking into consideration that the economy will slow down to some extent next year and, secondly, that the overall picture after the La Polar case for this segment is more uncertain. And, that's why we have been taking actions in advance, and that is part of the stricter credit policies that we mentioned in the call and in our press release.

So, until now, we haven't seen any relevant or material deterioration of asset quality, but we are very careful about that segment, especially the one that is shared with retailers.

In terms of profitability, Banefe has still a sound profitability, which is, up to now, mostly explained by lower provisioning requirements on a 12-month period, and in the margin is reaching -- we don't publish separate figures -- but it's still, for us, profitable. We have concerns going forward, mostly because the government is in the process of lower caps that the maximum rate that you will be able to charge in this segment, which shouldn't have an impact in terms of the current portfolio but, of course, limits, to some extent, the size of the potential market you can tap. There are some clients that, due to the risk in it at the new lower maximum rate, we will be unable to tap.

So, we think that the Banefe unit still is profitable. We don't see relevant trends of asset quality deterioration. And the only question mark is how fast they can go going forward, given the limitation on the prices that can be set.

That's why we have been moving -- there's been a change in the focus, in the short term, mostly to the non-capital consumer activities. We have been very active in transactionality -- debit card, in terms of insurance, in terms of all the non-lending needs of the client.

And, in the margin, we have also been lowering the amount of leverage we are willing to take. Traditionally, we lend up to three monthly wages -- four monthly wages. Today, we're lower than two times the monthly wages that the client has.

So, we have been -- we're in a -- it's part of the conservative bias that we have been discussing throughout the call. But, up to now, profitability has not suffered. And the only question mark, again, is how fast we can grow in that segment, given the new market conditions.

OK. Thank you very much for that answer. I also have another question. It's regarding about one-timers in provision expenses going forward for the rest of the year, because I know that in the case of the new mortgage system that we should expect around CLP3 billion. Would you expect more for La Polar-related provisions and, also, regarding the new SME and credit score? That's it.

We have -- in the fourth q, we will have an impact, not due to La Polar (inaudible) -- it's already taken care and probably, I'm not sure what else exactly, but it's around 50% provision, which should cover very much. We have a relatively little exposure to La Polar, and that's why that case is mostly over for us.

In terms of the change of the model, you are correct. We are planning like CLP3 billion of the mortgage. And then, we're doing something similar to SMEs. I don't have a strict figure today to share with you, but remember that the basic focus has been to anticipate provisions. Traditionally, and it's the case for many banks in Chile, what you did is you wait until you have problems with the client -- that is, facing some arrears, is a little bit behind the payments (inaudible) provision.

In our case, we are treating SMEs very much as individuals, where you do clusters of clients and, according to the cluster that the client fits, you take the provision in advance. So, once the client [detection] is passed -- facing difficulties -- you already have set the provision.

So, this is to some extent -- and that's why we consider them to be one-timers, because it's mostly you anticipate the duration that, with the older models, you simply will show it in time. But, today (inaudible) simply we wanted to mention that this process, that was started in September of last year when we upgraded the models of consumer lending, then, due to the change in regulation, included the model for meet high companies by the end of last year, had followed in the 3Q with mortgage, will be ended this year.

So, that's why, as we mentioned in the call, we think that we'll be in a much stronger position to face 2012, even in the case of further -- of a weaker operational environment.

OK. Thank you very much for the answer.

(Operator Instructions). The next question comes from the line of Jordan Hymowitz of Philadelphia Financial.

It seems like you had about [15 million] in one-time provisions, but you're also going to have to be provisioning at a higher level going forward, because (inaudible) changes. So, how much of that [15], if it wasn't a catch-up, would be ongoing?

Just to give you some figures -- historically, we have had levels of provisions of our loans of around 1.5% -- 1.6%. If you deduct the one-timers that we mentioned in the report, we are very close to that level. So, that's why we think that going forward that should be our level, going forward.

To be fair, in the second q and the first q, we had abnormally low levels of provisions, to a large extent because the economy was recovering and because -- well, the cash flow, et cetera -- once you receive the -- Especially the corporate side, we saw some positive news on the travel industry and other related industries. And, that's why I would say that the 3Q levels are abnormally high -- probably second Q and first Q were abnormally low. In a long-time period, we should be moving between 1.4% -- 1.6% of loans, which is very close to what we have seen in 3Q.

Remember that, if you go to a longer time, after picking up around 2.3% -- 2.2% in the downturn of the economy, this ratio has been steadily going down, in part, because we were [growing] but, in part, because clients were improving their cash flow, et cetera. And I remember a couple of calls ago, when asked more or less the same question, we said that we expected the process to be concluded by the first half or even sooner. The process lasted longer, and now we're going back to more normal periods.

OK. So, but, there's going to be a higher provisioning level than before, because you've got higher provisions for each individual product than before?

No. No. Remember that the only change is that instead of waiting until the client is actually facing difficulties, you take provision up front for -- relevant to the classes. So, if the model is correct, you already have done most of the homework. And if the guy is worse than what you expected, you have to supplement that going forward. So, for example, in consumer lending, we are seeing that clients that we lend the money back in September of last year -- we are not seeing a big increment of provision, because most of the homework was already been done. And that's why, going forward, -- this is, simply, you anticipate taking the provision, instead of waiting until the client actually fails. And, if the model is sound -- and this is something that you have to evaluate once a year, or even more frequently -- you can have a much [favorable] prediction of what to expect. So, it's not that permanently you provision more, it's simply that you anticipate provisions that, in other conditions, you have to wait until the client was showing actual deterioration.

Got it. I understand that. And second question is -- what do you think is a range of ROEs for you guys for next year if inflation stays at this low level?

Well, if you see the sensibility of our balance sheet, with inflation of around 3%, which is more or less what the market expects -- 3% means a core inflation of 75 basis points in the quarter. With that level, we have had in the recent quarters much higher level of net interest income. So, we think that as long as provisions normal out to the levels that we had talked before, as long as inflation normalizes to around 0.75 per quarter, and as long as we are able to contain costs, which is something that we are starting to do because we have finished most of the more demanding projects that we had for this year, we can go back to high ROEs in the upper 20s, as we have been announcing, at 26% -- 25% to 26%.

Remember that, in the year, that has been very abnormal, because we have had a number of movements in the provision line. We are generating -- for a trading basis because, again, in -- this quarter is completely out -- an outlier -- as probably the second Q was for the opposite reason -- we generate ROEs of 24%. If we have more normal margins, which is starting to happen because loan spreads are rising and, eventually, the central bank rates will be flat or going down, we think we can sustain ROEs a couple of points above that.

So, if I just normalize the provision this quarter, you're at about a 19% ROE -- 20% ROE. Is that the lowest number that you think you'd be at?

Probably -- probably yes. Well, actually, depending in inflation, of course, and in our central scenario. The point here is the following -- that we -- sometimes, you need to take actions that are not aimed at a specific target for the quarter. In the -- for example, in terms of your expectation about inflation, about movement of the interest rates, the relevant planning horizon should be at least 3 full quarters, because it is very difficult to change the whole structure of the assets and liabilities of the bank in a shorter period of time.

And, that's why you take, at the beginning of the year, a position in anticipation of what is expected to be the inflation, the interest rates, and other relevant dimensions. And, therefore, you take your position in anticipation of the next four quarters, or something like that. You don't look on a month-by-month basis or on a quarter-by-quarter basis.

And, that's why the financial part of the balance sheet is more sticky. But, the good thing is that -- number one, that we think the cost of funds is probably close to be peaking -- secondly, that inflation will be next year quite similar to what we are seeing this second half -- and, thirdly, that the commercial part of the balance, which, at least for us, is more relevant, is improving. We are increasing our spreads. We are increasing the number of clients. We are increasing the volume with the clients. And, that is, at the end, what produces value.

We have been following in 3Q a completely different approach of what we expect to do in the middle term, that is, to try to maintain the value of the franchise, try to be prepared for any unexpected event. Now, we can go back to the central -- to a central strategy -- but with a higher cushion of liquidity -- a higher level of capital. And, there'll be no major concerns about asset quality, because the overall trends of asset quality are sound. It's simply that we're anticipating, to some extent, provisions that, in other conditions, we could have perfectly wait for better times to set.

(Operator Instructions). The next question comes from Alonso Aramburu from BTG. Please proceed.

Thank you. I wanted to touch a little bit more on expenses. They've been growing double-digit or close to double digits the last couple of quarters. And you mentioned here in the press release that you continue to invest in technology and alternative distribution channels, so I was wondering if you can give us a little bit of a sense of how do you see the evolution of the expenses over the next few quarters, as far as growth.

OK. In terms of growth, we have been announcing since mid-last year -- we expected to finish a number of projects that we think will be key for our technology plan for going forward. Among them, very important is to have better tools for assessing risks, a process that will be concluded by 2011, as I mentioned before. Secondly, to have good tools for micro-segmentation, and we are developing a state-of-the-art CRM technology that we have been doing a lot of [honing] with this idea and should be giving the first byproducts -- it has already given some byproducts -- but fully in 2012.

We have been improving our internet capabilities and the capacity of our call center, et cetera -- all the remote channels. So, those are a [grade] of -- that allow us to go to another level, in terms of capabilities of servicing and understanding what our clients want and when they want it. So, those investments will be concluded, and that's why we are in the early stages of our budget, but we foresee growth closer to 8% -- 9% range more than the 12% -- 13% range that we are seeing today. And, if the conditions outside are weaker, it could be even lower than that.

Remember that, in our case, we have a very flexible -- especially in terms of wages -- it's a very flexible wage structure. The majority -- a big part of the compensation in the commercial areas is related to the production. So, that's why we think that in the case of lower volume growth, our costs adjust easily by having less be paid to the same (inaudible).

Great. Thank you.

The next question comes from the line of Federico Rey from Raymond James. Please proceed.

My question is from the spreads. You say that in the last month your loan spreads have been augmenting, and I wanted to see -- how do you foresee this going forward? That would be my first question. And my second question is -- regarding the provisions you have to take on both loans on the middle-market segment, do you think those were isolated events, or we can see further problems with this in the future? Thank you.

So, again state your second part of the second question. OK. Perfect.

Well, in terms of spread, I would say there are two forces that make us believe that, going forward, spreads should increase. Number one is that if we see a softer growth going forward, 4% -- 4.5% as we mentioned -- this process of a very robust growth that we saw in last year and the first half of this year will make, we think, all credit providers to be more protective and more prudent. So, that should increase because of softer conditions, as opposed to what we have seen in the last 18 months. So, that is element number one.

Second, and this is something that we hope the market will agree that we are reading, we think that the cost of capital and the cost of liquidity, in a rather permanent way, have increased. What we're seeing outside is a very difficult environment for banks, where regulation and self-regulation -- good banking methods will require to keep a cushion of liquidity and a cushion of capital that is much higher. And, given that that is a higher cost of operations, you should charge it to your clients. And, that's why, in our case, we have already done that movement, to be ready and fully-compliant with our internal guidance in terms of being high -- more liquid, more -- with higher buffers of capital.

And, therefore, at least in our case -- remember that, in our case, the size of the loan book is a result of the implementation of our profitability-driven strategy. We don't have specific targets in terms of market share, et cetera, but to have high and sustainable ROE. So, that's why, in our case, in addition to a more softer operational environment that we foresee, we will be increasing our spreads to reflect the higher cost of capital and the higher cost, or higher needs, for having more liquidity. So, we think that, eventually, that should be the trends for the play and, if not, we will be going at the lower pace, maximizing the consumption of capital.

In terms of provision, the middle market has been fairly stable but, of course, there are companies that fail and that's why -- the problem is that in our case, in the last year, it has been a very -- in the last 18 months -- has been a very safe part. Except for provisions for the [travel] industry, which had nothing to do with asset quality because it was a virus that affected the operations of these companies, we have taken very little provisions. So, we think that still the picture is sound. We have been receiving the balances of these companies, and they are having good results, both in 2010, and preliminary results for 2011 are sound.

Of course, there are companies that will fail, eventually. And, we were concerned at the beginning of the year, and we commented in these calls, that many mid-size and marginal exporters were facing the consequences of a very strong peso. Today, with the peso decreasing I think like 10%, et cetera, we are not concerned about that. So, that's why, at the end, you have forces that are negative and positive that tend to [counter each]. Our concerns are not in the mid-size companies nor in the large companies. They are more in the SMEs and in the consumer lending, and that's why we have to adjust our prices to reflect that softer operational environment and the impact that that might have over all time.

OK. Thank you.

You have a follow-up question that comes from Carlos Herrera from Barclays Capital. Please proceed.

I have another question that arised here. Do you -- the two middle market companies you have to provision as one of this quarter were in a specific segment of the market? They do a specific activity? And, are you expecting some sector of the economy, especially in the middle market, to deteriorate, as these two companies?

Not at this time. Remember that, in the case of these companies, we took a further provision. As you know, things can change for good or for bad, and that's why we are taking a more prudent stance on the two companies. The two companies have nothing to do with themselves and are in different sectors. And, that's why we don't see a systematic deterioration in any sector. Our concerns are more company-specific than sector-specific.

So, today, we don't have major concerns, and the only concern that we have as a sector, to call it some way, were marginal exporters that were facing the consequence of a strong peso. Today, that is not fully vanished, but it is a little bit less stringent. In the case of these companies, we have not charged off the loan. We are simply in a more conservative way to taking the provision, just in case.

How significant is the level of -- how much of the balance of those two middle-market companies is provisioned today?

Almost 100%. They're relatively small.

OK.

The two have the combined provision of 1,000. They are in the process of being -- there is a -- it's done in (inaudible) bankers, et cetera. And, that's why, eventually, we will be recovering, because the company has the assets. I think that the process takes long, and we prefer to take the hit right away. And, if we recover something, it will be good. But, we don't count on that.

OK. So, it's around 100%?

Yes.

OK. Thank you very much.

Close to that.

Thank you.

The next question comes from the line of Nicolas Chialva from Itau. Please proceed.

I have two questions. The first one relates to loan growth going forward because, as you said in the conference right now, that Santander is expecting to go back to its focus going forward, and the report states or talks about temporary slowdown in loan growth. But, on the same time, the bank is following a more selective approach. So, I'm wondering which is Santander plans to increase loan growth rate going forward, and if you have any target already for 2012?

OK. Well, as I've been mentioning throughout the call and in our press release, this is a temporary precaution stance that we are following. If we see that market conditions improve or at least stabilize and the uncertainties can diminish, of course we can change it very easily. And all the things are impacted, to some extent, our profitability -- having excess liquidity, taking a more precautionary stance in terms of renegotiations, in terms of provisions, et cetera. You can go back to a more normal mood very easy. So, it's not a permanent change. It's simply you have to wait.

And, the same happens with growth. As you might recall, in our case, we grew very fast, and we increased market share both in -- especially in retail loans which is our core. But, then we realized that, with more uncertainty, it was better to slow down a little bit. And, we have been this quarter in a wait-and-see attitude.

Going forward, now that we have built these cushions of comfort that we needed in defense of the scenario -- the idea -- we think the market should be growing at around 9% -- 10% -- a little bit faster in mortgage, a little bit faster in consumer lending, a little bit slower in corporate. We think that we can keep pace of that.

But, it will depend if we can get the return on capital we are targeting. In our case, we -- the accountants say if the spreads are correct, we grow faster or in line with the market. If the spreads are not fulfilling our aspiration of profitability, we simply slow down.

Remember that this is especially true in the corporate side, where we make two out of three pesos of our income comes from non-lending activities. So, the focus on the commercial lending and on the corporate lending, as a whole, is not in the lending side, but in the non-lending side. And, of course, you have to lend money, because the client has to -- wants to receive full service. But, your focus is in the non-lending side, which is much more profitable -- doesn't consume capital, doesn't consume liquidity and, therefore, is very attractive.

But, to make a long story short, I would say that we can keep pace of the market, because we think the rest of the market will start reading the news as we are reading. And, therefore, spreads should be increase going forward.

OK. Thank you on that. My second question relates to a comment on the [LN3] report, which states that [MPS] have been impacted by the [FX] rate. So, I was wondering which was the impact of that rate on the loan portfolio as well?

What happens is the following. We have like maybe 7% --8% -- of our loans are in dollars, mostly foreign trade loans, import/export, et cetera. So, some of those loans -- you have to take provisions for a part of those loans. And, that provision is also denominated in US dollars, or the currencies that you lend the money.

So, whenever you have, as we had in this quarter, a big depreciation of the peso, the provision by translation increases. It's not that the risk -- as a proportion of the loan, nothing changes, because both the principal and the provision move by the same -- it's more of an accounting situation that you have a translation of the new higher exchange rate. So, that is something that will reverse if the exchange rate goes back, or will affect the level -- the absolute -- the peso level of provision, if the depreciation of the peso follows. So, it's not a reflection of the deterioration of the client. It's simply an accounting effect that the same dollar now represents more pesos in your peso accounts.

Thank you. Yes, I was wondering of the 7% to 8% you talked about. Thank you very much. One last question is -- you just talked about an ROE close to 26% -- 25% -- as a guidance for the future. With which income tax rate are you working this number out?

The timetable set by the government is to have 20% this year, going down to 18.5% in next year, and followed by 17% in year 2013. Today, there is a small discussion about to have a full-blown tax reform. So, that is something that is under review. So, in our case, what happens is that our -- given the -- it's a technicality, but given that our -- the tax -- we have a tax balance and a financial balance. In the financial balance, now -- the ones that you see and we publish -- is done according to IFRS standards, you eliminate an adjustment by inflation. And, that's why our effective rate is lower than the statutory rate.

So, going forward, if we keep the 20% rate -- if it is kept because of this tax reform, which is something that we don't know -- our actual rate could be around the levels we see today. And if it goes down, it can go back to 13% -- to 15% -- to 14%. So, we were thinking basically in terms of maintaining a statutory rate according to the calendar set by the authorities, which in our case represents a lower effective rate.

OK. Thank you very much for your answers and for the call.

We have no further questions at this time.

OK. 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.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.