Banco Itau Chile (ITCL) 2014 Q2 法說會逐字稿

Presentation

Thank you for standing by, ladies and gentlemen, and welcome to the CorpBanca conference call on the second quarter 2014 financial results.

We have with us Mr. Fernando Massu, Chief Executive Officer; Mr. Eugenio Gigogne, Chief Financial Officer; and Miss Claudia Labbe, CorpBanca's Manager of Investor Relations.

(Operator Instructions)

I must advise you the conference is being recorded today, Wednesday, August 13, 2014.

We now pass the floor to your speaker today, Miss Labbe. Please go ahead.

Good morning. Thank you for joining our conference call for our second quarter 2014 financial results. I am here with Fernando Massu, CEO, and Eugenio Gigogne, CFO.

I would like to remind you that all figures are presented in Chilean pesos unless otherwise stated and that my remarks may include forward-looking information and our actual results could differ materially from what it is discussed.

To begin, I would like to highlight that in second quarter 2014, net income attributable to shareholders totaled CLP65.3 billion, reflecting a 49.3% increase when compared to second quarter 2013, year over year. The increase mainly reflects the growing commercial activity in Chile, the positive impact of inflation rate combined with a lower monetary policy interest rate in the local market, and full incorporation of Helm Bank since fourth quarter 2013.

Total loans, excluding interbank and contingent loans, reached $26.4 billion as of June 2014, allowing CorpBanca to achieve a market share of 7.6% in Chile, an increase of 20 basis points in comparison to December 2013. CorpBanca continues to be the fourth-largest private bank in Chile in terms of loans and deposits and has closed the gap to the third place bank. CorpBanca also ranks as the sixth-largest private bank in Colombia, with a 6.6% market share.

Other important highlights for second quarter 2014 are: net operating profit increased by 57.6% year over year and by 12.7% quarter over quarter; net provisions for loan losses increased by 66.6% year over year and increased by 10.4% quarter over quarter; and total operating expenses increased by 66.4% year over year and decreased by 7.6% quarter over quarter.

Before starting with the presentation, Fernando Massu will like to comment some recent highlights.

Thank you, Claudia. Good morning.

The results during the second quarter 2014 showed a significant improvement compared to last year, year over year, as we expected. Second quarter 2014 results fully consolidated Helm Bank, although one-time integration costs partially offsets the benefits of acquisition.

Though we still are in the early stages of that integration process, on June 1, 2014, the merger between Banco CorpBanca Colombia as absorbing society and Helm Bank as the absorbed entity was successfully formalized. To date, synergies are being generated as scheduled initially.

Due to current favorable economic conditions, Colombia acts as a buffer in periods of economic slowdown in Chile, mitigating the impact of CorpBanca's results. In connection with the pending merger between Itau Chile and CorpBanca, on July 25 Fiscalia Nacional Economica concluded that the proposed transaction did not represent a threat in terms of market concentration, an important step in regulatory approval process.

Also, in June 2014 we issued senior bonds in the local market for $130 million, and in July 2014 we led the placement of a syndicated loan facility for $490 million, the largest in Chile, in line with our strategy to diversify funding sources, strengthen liquidity, and financed commercial activities.

Recently, local rating agency Humphreys upgraded CorpBanca's rating from AA- to AA, in national scale, due to the Bank's ability to integrate two institutions in Colombia without impacting the Bank's results. Humphreys also concluded that the Bank's viability rests on its foundations independent of the pending merger with Banco Itau Chile as well as its ability to face successfully exceptional situations like the liquidity tension during 2013.

Now, Claudia will refer to CorpBanca's trends during second quarter 2014.

Thank you, Fernando.

To begin, let's move to slide 3. The chart shows the trend in our 12-month trailing net income from December 2006 through June 2014. During this period, our net income for the 12 months trailing June 2014 reached record levels: CLP171.9 billion, excluding for 2013 CLP16 billion of one-time profits from the sale of 31 real estates, resulting in a 22% increase year over year.

As I previously mentioned, second quarter 2014 results showed a significant improve compared to last year: CLP65.3 billion, a 49.3% from CLP43.7 billion in second quarter 2013.

Next slide, page number 4. In order to show the impact of the Colombian operation, the following table presents the results generated in Chile, as well as the ones generated in Colombia. It is important to mention that the book of CorpBanca in Chile includes some expenses that are associated with the operation in Colombia, in particularly interest expenses in connection with the part of the acquisition of Banco Santander Colombia that was not funded with equity; amortization of the intangible assets generated in Banco Santander Colombia, known today as Banco CorpBanca Colombia, and in the acquisition of Helm Bank; and impacts in connection with the fiscal hedge used for coverage of the tax effects of the total investment in Colombia.

These adjusted results for second quarter 2014 allow the separation of the Chilean result from any impact related with the acquisition of Banco Santander Colombia on May 2012. The adjusted second quarter 2014 results present, in our opinion, an unbiased result achieved in Chile.

Our operation in Chile generated CLP60.7 billion in second quarter 2014, while our operations in Colombia generated CLP12.4 billion of adjusted net income. Adjustments are related to CLP7.3 billion associated with the funding for the acquisition of CorpBanca Colombia; CLP1.1 billion of hedged taxes, in dollars, counterpart in income tax expense not included here; and CLP3.0 billion of intangible assets amortization and integration costs in Colombia. These figures shows that greater business diversification has generated an increasing revenue stream.

Moving along to slide 5, profitability. We have achieved an average annual return on equity of 20.1% between 2009 and 2012. Capital increases [raised] between 2011 and 2013 to fulfill our organic growth in Chile and our acquisitions in Colombia, for a total amount of $1.6 billion, approximately a 137.1% increase, have impacted our ROAE since the third quarter 2011. We achieved an average annual return on equity of 17.9% between December 2009 and June 2014.

The following other items have also negatively impacted our return on average assets between 2009 and October 2013: the increase on our corporate loan, with lower credit risks profiles and lower spreads than in our retail loan in 2011 and beginning of 2012; the accrual of Banco Santander Colombia -- today, Banco CorpBanca Colombia -- net income commencing in the second half of 2012 and of Helm Bank for the last five months of 2013, compared to a full year in 2014.

The shift in the trend between October 2013 and June 2014 was a result of: the full recognition of CorpBanca Colombia's results in 2013 and of Helm Bank since 2014; and the higher UF variation, last 12-months, observed in June 2014, an increase of 1% in second Q 2013 versus 5% increase in second quarter 2014, and a low monetary policy interest rate.

CorpBanca's second quarter 2014 performance was remarkable as a consequence of greater business diversification which resulted in more stable revenue stream.

Next slide, talk about our market share. As of June 2014, according to the SBIF, we were the fourth-largest private bank in Chile in terms of the overall size of our loan portfolio: 11.9% (sic - see slide 6, "11.2%") market share on a consolidated basis and 7.6% market share on an unconsolidated basis only taking into account our operations in Chile.

In Colombia, our market share reached 6.6% as of May 2014, according to Superintendencia Financiera de Colombia.

During third Q 2013, CorpBanca added $5.3 billion in loans through the acquisition of Helm Bank, which contributed to our increase in market share on a consolidated basis for the two last quarters and on a year-over-year basis. On the other hand, CorpBanca's local market share on an unconsolidated basis, taking into account just our operations in Chile, increased in comparison to fourth Q 2013, reflecting our focus on increasing profitability and liquidity in Chile.

Upon the recent legal merger with Helm Bank, Banco CorpBanca Colombia consolidates as the sixth-largest bank in Colombia by loans, with a significant presence in the commercial banking and medium-high income individual segments. The consolidated entity is a larger-scale actor along all product lines, with a balanced business combination focused on commercial and retail operations. As of June 2014, the combined bank had $14.6 billion in assets, $10.7 billion in loans, and approximately $9.9 billion in total deposits.

Moving along to number 7, talk about our asset quality. Consistent with one of our core strategies, CorpBanca has one of the lowest credit risk indexes, measured as total loan losses to total loans, in the banking industry in Chile. Specifically, as of June 2014, CorpBanca has the lowest credit risk index in its Chilean loan portfolio: 1.36%.

Next slide, number 8, continue to talk about asset quality. CorpBanca's high asset quality was maintained following the acquisition of Banco Santander Colombia in May 2012 and Helm Bank in August 2013. The chart illustrates how our consolidated non-performing loans ratio compares to the industry average in Chile. We believe that our risk management processes and methodology enable us to identify risk and resolve potential problems on a timely basis.

Finally, on slide number 9, our capitalization level. The increase of capital during first quarter 2013 to acquire Helm Bank improved the trend in our BIS ratio in 2013. With the consolidation of Helm Bank's risk-weighted assets and the goodwill deduction, our BIS ratio remained strong, reaching 12.7% in June 2014.

Thank you. Now, if you have any questions we would be happy to answer them.

Thank you very much indeed, Ms. Labbe. (Operator Instructions) Juan Dominguez, Credicorp Capital.

Congratulations on the results. I have a couple of questions regarding the operation in Colombia. The first one is regarding commercial activity in that operation. Loan grew around 9% in a quarterly basis, and I just wanted to have an update on the aggressive strategy that you are having in Colombia and how this strategy would reflect on NPLs going forward?

And the second question about Colombia is about efficiency. You said in the call that you have been receiving the synergies according to the schedule. I want to know how the IT process is going on?

And also, I saw a sharp increase in headcount in Colombia during the quarter, around 8% increase. So, I want to know what's going on there?

I'm going to try to answer the question that you have about Colombia. First, I have to say that loans in Colombia are growing more or less the same as the system; the system is growing around 15% to 16%.

In Colombia, the elasticity to GDP is around four times. So, we are expecting that if --. Colombia is still improving GDP. So, we would expect that loans are going to grow above this number.

Also, in terms of NPLs, we are below the system. Do you have the numbers here?

In terms of non-performing loans in Colombia, because in the presentation we show our consolidated information on non-performing loans including Chile and Colombia. But if we separate by country and you look at the non-performing loans in CorpBanca Colombia, as of June we have 0.9% non-performing loans, which in terms of comparison with the end of 2013 and June 2013 is a slightly decrease.

So, the portfolio, specifically the non-performing loans in Colombia, are behaving quite well, and we feel that we have still room to further increase in Colombia, taking more risk but not degenerating our risk-return ratio.

So, you are easing a bit the underwriting policies in Colombia?

Sorry. Can you repeat the question?

Are you right now making less stringent the underwriting policies in Colombia? Or, you are maintaining them?

What we have done in Colombia is that we have tried to make the same policy in the two banks in Colombia. You know that Helm has already been merged into CorpBanca, but before that, what we did is to make the same policy for the two banks and to be also according to CorpBanca's policy.

So, that is why you have seen probably during 2013 and the first part of 2014 more provisions in Colombia, not because of a deterioration in the portfolio, but just to make the policy the same for both operations.

Claudia is trying to say that you have to -- I don't know how do you say this in English -- but you have to do the same provisions, the same reserves for --. If you have two similar, identical clients in one bank and in the other one, you have to have the same policy in both of them. So, you have to have the same credit reserves.

And that's the reason why you are going to find a [charge due that].

Understood.

But it's not because of the deterioration; it's due to the -- to put in place one credit policy.

In terms of the synergies that you were asking, I could say that this year most of -- some of them are going to be in place, most of the ones that are related of human resources. But we are expecting that those synergies are going to be this year in around $20 million. And due these synergies, the cost of them are the severance payments that we have done, and that's the reason why you look an increase in the cost. And as Claudia mentioned in the presentation, we are as we scheduled in terms of synergies.

One thing that is important is that when you see the numbers based on Colombian GAAP, we have the amortization of the so-called credito mercantil, which is the difference between the price paid for Helm Bank and the book value of the equity of Helm Bank. And that, according to the local GAAP, should be amortized in a range between five to 20 years. We are using the five-year rule to do that amortization.

And of course when you see that, the expenses dramatically increase in Colombia. But based on IFRS, those expenses are not amortized, because they are treated as intangible assets and goodwill.

So, for us, the real cost so far of the integration process are, from one side, the ones that are related to provisions, as Fernando mentioned; that is, to have an homogeneous system for classifying loans and customers in Colombia, that what is important is that we try to be more conservative. So, this was not only an adjustment of the provisions required for Helm, but also its implied change in provisions in the CorpBanca Colombia loan portfolio, which was a one-time cost that we faced during the first part of 2014.

The second thing that was affecting us was what Fernando mentioned, was the severance payments related to the reduction of employees. For example, between December and June, we adjust the total headcount in the range of 200 people. And if we see that compared to August 2013, the total number of reduction has been in the range of 475 people. Of course, that implies a severance payment.

And also, we have to take into consideration that we need to do an homogeneous benefit system. So, sometimes we have to increase a little bit the benefits that we pay to the employees, but those are one-time expenses.

So, from our point of view, what we are seeing for 2014 is that the total expense based on IFRS rules when we compare 2013 with 2014 for the consolidated bank in Colombia, we should not see an increase in expenses; it should be flat. But we have to take into consideration that, as Fernando mentioned, for this year so far the benefits of the synergies are compensated by the cost of the synergies. But for 2016 and 2015, we will see the synergy benefits, and of course because those expenses are one-timer, we should not see in the future.

It's important to mention that we have achieved some portion of this integration process. So far, we are one legal entity in Colombia. But of course, we still are doing all the change in systems and migration from the two banks to one unique system that we expect to have finished mid-2015. And of course, there is still a lot of potential in the expense reduction that we are going to see starting probably the fourth quarter of 2015 once we have finishing that part of the process.

Thank you. Just another question about headcount in Colombia. Year to date, the headcount has increased around 300 employees. I wonder if you can give us some guidance on what is that going forward?

What we have is --. When we see the number of employees -- that is, adding the total employees from Helm Bank plus the total employees of CorpBanca Colombia -- if you add those employees, in August 2013, the total headcount was 4,258 employees. As of June 2014, the total employees are 3,823 employees. So, the difference actually is a reduction. We have not increased the number of employees.

Juan Dominguez, I know what is the problem. There is a note that should be included in the report, that I am looking at it now, and it's not included. And in December, the headcounts reported for Colombia did not include the subsidiaries, and we are including the subsidiaries now. So, we are missing the note to specify that. So, that is why it is confusing for you and you are seeing an increase which is not.

(multiple speakers)

So, I will send you a detail with the information, and we will include that in our presentation also.

Okay. Thank you.

Alonso Aramburu, BTG.

I have a couple of questions. The first one is, can you remind us what are the next steps for the Itau transaction that are left?

And then, my second question would be also regarding Colombia. When you look at Colombia individually, just wondering what the profitability of the business is today? It seems like the ROE is in the high single-digits, but it isn't easy to see because not all the information is there. So, I'm just wondering what the profitability of the business is today and if you still expect that to reach the 20% after the synergies are attained?

In terms of the transaction with Itau, as you may know, all the presentation have done the authorities [in Chile], in Colombia, also in Panama, in Brazil, and in the US. We are expecting what is going to happen with the [cartigas] and also the decision that have to take IFC.

We are expecting that during September we are going to have news about that. And if all the things run well, we are going to call in order to do our shareholders' meetings during November. So, as I mentioned, if all the things are running well, we expect the merge to be done during the first trimester of 2015.

Okay. Thank you for that.

Regarding the profitability of the operation in Colombia, what's important to say is that the way that we compute the result for Colombia for Chile purposes and for the purposes of the shareholders of CorpBanca is under IFRS rules. When you see the result that has been published by the Superintendency of Banks in Colombia, they are showing Colombian GAAP. And as I mentioned to you, those numbers shows an amortization of the credito mercantil -- this is the Colombian goodwill -- that accounts for approximately $100 million per year, a thing that under IFRS rules are not done.

When you take out that effect and you compare, for example, the equity in the books in Colombia, we are expecting that this year we should be generating approximately $180 million in Colombia, which of course for the purpose of the shareholders of CorpBanca we obtain roughly two-thirds of those $180 million. And that is a return that based on the accounting equity should be close to probably 13%, 14%.

So, answering your question, after we finish the integration process, we are very confident that the return on equity in Colombia should be in the range of the 20% that we have been forecasting.

What is important is that we have been in line with the integration process. Also, the loss of market share in Colombia has been close to zero, what we think is very, very important.

Also, our net interest margin in Colombia has been improving, even though average rate in the industry and in the banks has been going down, which is a Colombian situation in general. From our point of view, the costs of funds has been reducing faster than what the cost of funds has been for the Colombian industry. So, that means that we have improving our margin, and we expect to continue that.

Our return on equity, when we adjust by all these one-time expenses and this impact of the goodwill that I mentioned, the ROE is close to 14%. But we know that the number that you might see based on the Colombian books are just only 7%. But what is important is for the shareholders of CorpBanca, the benefits are in line with the 20% long-term return on equity that we expect to have in Colombia.

Great. That's very clear. Thank you for that. And one last question, regarding loan growth in Chile. It was quite fast this quarter. Just wondering what you guys are expecting for the second half of the year and basically the beginning of next year, as well?

As you may know, the total industry has obtained benefits because of the UF, that I think that it's not going to be in place during the second semester. But that's true for the whole industry.

But in the case of CorpBanca, as also Claudia highlights, the commercial area in CorpBanca was very powerful. We have done very profitable deals during this first semester, and we expect that this is going to continue during the second semester, mainly because we have, I could say, a very strong pipeline of deals during the second semester. So, we think that this is going to be the trend during this period.

And so, even though the inflation rate is not going to be as high as it was in the first semester, we are very confidence that -- in the deals that we are going to make during this period. So, we don't see any weakness in our future results during this year.

In general, we think that what we forecast, for example, next two to three years, from our point of view what we want to do in Chile -- and I'm talking about based on a stand-alone basis -- we should be growing in line with the system.

What is important for us is that, especially for our wholesale banking, our objective is not to hold in our books the loans that we grant to those customers. Actually, we have been developing a sort of distribution desk for syndicated loans that we granted to Chilean customers, which allow us to maximize the use of our equity and also guarantee us the profitability of generating the transactions and all the benefits that are based on a more structured financial solution to our customers.

So, for us, more than growing the loan portfolio, per se, what we are looking for is to increase the profitability of the usage of our capital in transactions that really create value to the Bank.

What is also important is that when you see the numbers in Chile, there are some growth that are related to exchange rate. Exchange rate, as you may know, has been devaluated in Chile. And of course when you compare with December 2013, all the loans that are denominated in US dollars has increased the value, but it's not a real growth.

When you see our numbers, probably 50% of the growth is real-term growth, and the rest is growth that are related to either the UF value or the US dollar value compared to the peso. Same thing happened with the system. We are not an exception in that sense.

We have been gaining market share in Chile. If you compare with the end of 2013, we have been gaining 20 basis points, at least, in the last six months. But as I mentioned to you, we feel comfortable by growing at the rate of the industry, but of course our goal is to improve the average return on assets of that loan portfolio.

Great. Thank you very much.

Claudia Benavente, Scotiabank.

Just a follow-up question. Since many of the costs have been and will continue being recognized during 2014, I was wondering how much of the $100 million in synergies you've been talking about for the Colombian operations do you believe may be achieved by 2015?

We think that we are going to be around 50% of the $100 million.

Great. That's great. And just another question about asset quality. The NPL ratio that currently you have, it's pretty low. Just was wondering what are you looking for for a target for year-end and next year, considering you are targeting as well to change a little bit the mix probably?

Do you mean in Colombia or in Chile?

Both, or consolidated.

What we have been seeing is that even though there is a slowdown in the Chilean economy, so far we have not seen an impact in our credit quality or in our non-performing loan portfolio. So, so far, the quality of our loans in Chile has been very strong, and we do not expect to see a deterioration in the second part of this year. When we see the retail loan portfolio, the same situation is appreciated here.

In the case of Colombia, we are still far below the average of the industry. Has not been a significant increase in the risk index. We are more optimistic than we were at the beginning of this year regarding the performance of the Colombian economy. So, that should help us to continue growing without any significant increase in provision.

What you have to take into consideration is that in Colombia the requirement for provision are much higher than in Chile. So, every time we grant a loan in Colombia, the minimum provision that we should compute for a loan for a high-quality corporate customer, for example, is 1.2%. That, when you compare with Chile that technically is 0.5%, of course shows the sense that growing in Colombia is much riskier. But our experience shows that at the end of the day those are very high-quality loans.

So, I would say that the same thing is what we expect in Colombia as well as Chile: maintain the high quality of the loan portfolio, if all the projections for the Chilean economy are in line with what we are seeing right now and what most of the economists are forecasting for Chile.

So, you feel comfortable with the current levels the Bank has been showing?

Yes.

Great. Thank you.

Boris Molina, Santander.

I have a question regarding your NIMs. When we look at the Chilean banks, most of them experienced a noticeable expansion in margins because of the effects of the UF. But in CorpBanca, we don't -- we know that the [rest of] the Colombian operations are not affected by this, but as you mentioned, margins in Colombia expanded. But in CorpBanca on a consolidated basis, there doesn't seem to have been such a strong impact.

So, is this because your growth in Chile, where you seem to be recovering market share after the loss of market share in second half last year, is it coming with lower margins? Is there an impact of in terms of spread that is offsetting the positive effect of UF in your NIM?

I have a different view about what you are saying. Actually, as we have been mentioning continuously, the way that we handle our GAAP in terms of our loan position in UF, as well as the structure of the assets and liabilities, it is -- you have to see both the net interest margin plus the Treasury and exchange rate results. We have to see in the combination.

What we have been seeing of course is that every time the UF is high, every single bank in Chile gains over that situation. Plus, the impact of the reduction in the monetary policy rate has allowed us to increase our net interest margin. For example, if we see for the three months ended June 2013, our NIM was in the range of 3.15%. And for the same period of 2014, we have been growing to a 4.22%. That is without including the benefits that we record in the line of Treasury activities, which are the derivatives that we use to hedge or to increase those positions.

We know that in some situations when the expectation of growing inflation, we have the ability to open the long position and increase our position. We have been very successful when the expectations are going down. So, we have the ability to adjust very quickly, but the way to do that is through the derivative market, not through a structural market.

Also, (technical difficulty) see in our net interest margin is that we have probably, compared with other banks, funding that is obtained in US dollars; for example, the bonds that we issued last year, the syndicated loan that we are obtaining this year. Those debts are in US dollars, but of course we hedge those through a derivative program.

So, answering your question, we are benefiting from the UF the same way that the other banks are doing. We are not different in that sense. But the tools and the means that we use to achieve those are different from the largest bank, which benefits more from the [price of] deposits and checking account balances that they have. They have a more natural hedge compared to us; we use the capital market to do that.

Wonderful. I understand. Thank you very much for the explanation.

And I had a follow-up question regarding the integration expenses in Colombia. Could you be able to quantify how much has been the additional provisions that you have taken in Colombia to do the [homogenization] of the provisioning requirements? And how much are the severance and these integration expenses that you mentioned that are going to offset the synergies this year? Just because it would be useful for us to see more or less what these numbers are so that we can have an idea of what the normalized profitability is and how operations are improving in Colombia.

Boris, what we had in Colombia, under Colombian GAAP, in terms of provision extraordinary expenses -- for 2013, it was [$13] million, and what we expect for the full year in 2014 are $10 million. Also, the --.

That is on the provision side, right?

That's just in terms of the provisions.

And termination expenses and these integration costs that are non-recurring, do you have an idea what -- in the cost line, I mean?

Those are the extra expenses that we have in terms of provisions. Also, in terms of -- we have mentioned before -- but in terms of severances, for example, and other administrative expenses, for 2013 we had $30 million, and we expect for this year $36 million. That is why Eugenio mentioned that it's pretty much flat year over year in that sense.

And of course, you have under Colombian GAAP the goodwill, or the credito mercantil, amortization, which is roughly $100 million for this year. And in 2013, of course, it was a portion of the year that we had the Helm Bank operation. So, it totaled for 2013 $36 million in terms of that amortization in Colombia.

So, if you add all those effects in Colombia, you have total for 2013 $79 million and, for this year, if you compute also the goodwill amortization in Colombia, it's $140 million, which most of that is the $100 million of goodwill amortization and the rest, the $47 million, is severances, administrative costs, and the loan provisions for amortization.

And do you have an estimate of this $47 million, that you have this year, how much it's going to be next year? Is it going to be $20 million? $15 million? Obviously, it should probably be lower?

It's lower, yes. Definitely, it's lower. It's decreasing, because the only stage that we are still have pending in Colombia in terms of the merging process is the migration of the IT model that CorpBanca Colombia had. So, we are going to have additional costs because of that and also the last part of the restructuring process of all the headcount associated to that kind of process. But definitely, it will be decreasing.

So, next year what you are going to see is that the savings are going to be higher than the one-time costs. So, when we started this process, we said in a three-year time we would have in a ramp-up the synergies, and of course we would have to have some additional costs. And we are pretty -- very, very in line with that in terms of the amount and in terms of the timing.

So, for this year, if you do not consider the amortization goodwill in Colombia, the savings are pretty much even with the costs. And for next year, it's going to be that the savings are going to be higher than the costs. And then, for the next years on, of course we are going to keep the savings, and we are not going to have the additional costs that we are having for the first stages of the integration process in Colombia.

As an example, complementing what Claudia has said, in terms of loan provisions during this year, we have [made] almost all and the number is below the $10 million that Claudia mentioned that we were forecasting for the whole year. It's around $6 million.

Okay. Wonderful. Thank you so much. Can you remind me what is the total cost synergies that you expect to achieve after the three years?

We don't have the number here, but Claudia could send to you afterwards.

Okay. Wonderful. Thank you so much.

Frederico Vita, Nucleo Capital.

Congratulations for the results. I just would like to know -- [actually, this is (inaudible) speaking]. I would like to know if the benefits of the lower funding costs are already full reflected in the income statement of this quarter? Or, if you do expect an improvement in NII from better funding costs?

As you could see, our funding cost is improving since last year. So, all the benefits that we are going to receive are not all of them in place. We think that we are still receiving benefits from that reduction.

In terms of funding costs, we are almost at the same level that we were in the past, like 20 basis points above our benchmarks. That is the normal due our rating; our local rating is almost our average that we observed in the past.

This reduction of [assignation] that you observe since the end of last year. So, we think that we are going to receive all the benefits during the whole year, because we think that we still -- the central bank also is make more reductions in the interest rates. So, we think that and we are expecting that results are going to improve due that.

In addition, it is important to remember that all the segments that are related to retail customers as well as commercial customers, different ones from the institutional investor, we have been facing the same cost of funds despite anything that happened last year. Those cost of funds has been stable.

What we are talking, and Fernando was showing, was the [ways] our secondary market rates. And in particularly, the increases in bonds that was mentioned in our report, as well as the syndicated loans, has also helped us to not put a lot of emphasis in the institutional investor market. We are more focused on the customer-driven term deposits and those are, as I mentioned before, pretty much in line with what we have been paying in the last time.

Also, what we call our online term deposits, which from the point of view of the cost of the transaction are close to zero for the Bank, we have been very successful.

So, we feel very comfortable with the cost of funds structure, the way that we are funded the Bank. And also our increase in terms of the sight deposit and checking account balances has also helped us to support the growth. We feel very comfortable in terms of cost of funds today.

I would like to highlight what Eugenio mentioned at the end, that sight deposits since December in Chile have increased more than 20%.

Okay. Thank you.

Juan Dominguez, Credicorp Capital.

I have a question about taxes. In the fourth quarter and the first quarter of this year, the effective tax rate was quite high, and it came down substantially in the second quarter of 2014. I was wondering if you maybe can give us some guidance on what to expect in terms of taxes for the remainder of the year and in 2015?

First of all, it is important to mention that the statutory tax rate in Chile today is 20%; in Colombia, it is 34%. What you see -- what we have been presenting in our financial statement for the first quarter 2014 are the impact of the way that we compute taxes in Chile.

For example, for the purpose of the investment that we did in Colombia in 2012 and 2013 -- the investment of the acquisition of Santander operations as well as Helm Bank -- that is an investment that according to the Chilean tax rule is an investment in US dollars, and that investment has monetary correction that might generate a profit or a loss. And in our case, that impacts the results in terms of the tax that we accrue on a monthly basis.

As you are aware, the exchange rate in Chile devaluate the peso against the dollar probably in (technical difficulty) pesos in the last six months. That generates, from the point of view of the tax results, a huge profit. So, we have to do this tax provision for those profits.

And the way that we handle those higher taxes or lower taxes in the case the exchange rate revaluates in Chile, what we do is we hedge those taxes by having a long or a short position in our derivative portfolio. The thing that is annoying for us of course is that where we compute and present the result of that hedge is in a different line of the financial statement and in particular the income statement, where we show the impact that compensate the higher taxes.

So, what you see there is more than a tax increase because of change in the tax rate; it's more the impact of an accounting presentation that the negative or positive impact in the line of taxes expense are presented and where the hedge of that position is obtained the benefits.

Claudia, you may, for example, explain that situation [with a few numbers].

I make an exercise. It's not with the second quarter numbers, but it's still useful. And what we do is to take on one hand the note of our financial statement, the segment note which is note number 4. And there, you have the net income before taxes for Colombia and of course on a consolidated basis.

And then, you take the adjustment, the ones that we publish when we separate the consolidated results from a management point of view, excluding from the operation of Chile all the costs that belongs to Colombia but that we have in the Chilean books.

So, with those numbers, you can -- and I can send it to you later-- but what you are going to find out is that the effective tax rate on a consolidated basis is almost 26%, which is something that is very difficult to take from directly from the financial statement for the reasons that Eugenio explained, is that we cannot compute the fiscal hedge in the same line of the tax expense. So, that make it very difficult to understand. But we have that hedge which is for those purposes.

So, at the end, what we have is an effective tax rate of roughly 26% on a consolidated basis.

And if we could have the exchange rate fixed, or with no volatility, then you could see it more clearly, because in general what we have in Chile is that our effective tax rate is still the same that we have always had; it's around 17%. And in Colombia, it's not the effective tax rate, of course. It's not the 34% statutory tax rate. It's lower, also. So, in that combination is where we have this 26%.

But the most difficult part is to assess the volatility of the exchange rate, because this is what explain the movement that we have. But if you could take that out, it would be the numbers that I am mentioning to you. It's a very simple exercise and all the information is available. It's just to know how to take the numbers to reach that effective tax rate.

Thank you very much.

(Operator Instructions) As there are no further questions, I'll now pass the floor back to Claudia Labbe for closing remarks.

Thank you for joining our second quarter conference call, and I am looking forward to our next one. Good bye.

And with many thanks to our speakers today, that does conclude our conference. Thank you for participating. You may now all disconnect.