Banco Itau Chile (ITCL) 2015 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the CorpBanca Conference Call and the Third Quarter 2015 Financial Results. We have with us Mr. Fernando Massu, Chief Executive Officer; Mr. Eugenio Gigogne, Chief Financial Officer and Ms. Claudia Labbe, CorpBanca's Head of Investor Relations. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today. We now pass the floor on to one of your speakers today, Ms. Labbe. Please go ahead.

Good morning and good afternoon. Thank you for joining our conference call for our third quarter 2015 financial results. Here I am with Mr. Fernando Massu, CorpBanca CEO, and Mr. Eugenio Gigogne, CorpBanca CFO. I would like to remind you that all figures are presented in Chilean peso unless otherwise stated, and that our remarks may include forward-looking information and our actual results could differ materially from what it is discussed. Before starting with the presentation Mr. Massu would like to comment some recent highlights.

Thank you, Claudia. Good morning. Third quarter of 2015 net income achieved CLP62.6 billion, that breaks in CLP53.6 billion for Chile and CLP9 billion for Colombia, an increase of 10.8% quarter-on-quarter and 14.6% year-on-year. These figures favorably compared to the Chilean Banking Industry, which for the same periods showed significant decreases in net income of 18% and 19%, respectively.

While 2014 showed stronger results from Colombia, during 2015 we have been observing higher than expected results from Chile and lower than planned results from Colombia. The latter is explained by unfavorably Columbian, Chilean pesos exchange rates movement, and higher loan loss provision expenses as a consequence of difficulties experienced by the Colombian oil & gas industry and related sectors. While Chile's operations have been favored by commercial customer [driven] results, higher net interest margin has consequence of higher UF variations and lower loan loss provision content.

These extraordinary results have been achieved under lower than expected economic activity in Chile and Colombia. In particular, CorpBanca Colombia has been able to offset this more challenging economic context with the positive impact of cost savings already achieved from the completion of some of the stages of the merger between CorpBanca Colombia and Helm Bank.

In the case of Chile, the stronger results have been achieved despite all the activities related to the merger with Banco Itau, the effort that has been taking high momentum after the extraordinary shareholders' meetings approved the transaction and the Superintendency granted its authorization during this quarter. Year-to-date results exceeded our year-to-date budget by a couple of percentage points, and remains slightly below 2014 accumulative result by 0.8%. That remarkable performance positively compared to the Chilean Banking industry, whose results this year are 13.2% below 2014's. The recent monthly results released for October 2015 also encourages us to make all our efforts in order to end this year accomplishing the targets we set at the end 2014.

In line with our strategy focused on non-conventional renewable energy and our permanent concern to maintain high level of corporate governance, we integrated into two major sustainability indices. The first one is the newly launched Dow Jones Sustainability Index Chile, becoming one of the 12 companies of the IPSA Index that compounded 50 Index.

The second is the Euronext Vigeo Index - Emerging 70. The 70 most advanced companies in the emerging market region, that distinguishes companies achieving the most advanced environmental, social and governance performances.

Now Claudia will refer to CorpBanca's trend during third quarter 2015.

Thank you, Fernando. To begin, I would like to highlight that in the nine months period that ended September 2015 net income attributable to shareholder totaled CLP158.8 billion decreasing 0.8% when compared to the same period of 2014. Sound loan growth in all business segments both in Chile and Colombia when measured in each local currency and synergies already delivered in Colombia were partially offset by higher provisions for loan losses and negative translation effect COP/CLP exchange rate of our Colombian subsidiary, and the negative impact of lower year-to-date inflation in Chile on net interest margin and higher tax rates. Nonetheless, we achieved nine month 2015 with 101% compliance regarding our budget for the period.

Now let's move to slide number 3. The chart below shows our accumulative 12-month consolidated net income trailing for December 2008 through September 2015, in Chile and Colombia. During the last 12 months ended September 2015, our net income reached CLP225 billion, a 3.7% increase quarter-over-quarter, and a 13.4% increase year-over-year. Our Chilean operation totaled CLP161.7 billion and CorpBanca Colombia totaled CLP63.3 billion, equivalent to almost one-third of CorpBanca's consolidated net income compared to 15.3% only in 2013. While 2014 showed stronger results from Colombia, during 2015 we have been observing higher than expected results from Chile and lower than planned results from Colombia as Fernando just mentioned.

Next slide page number 4. The following table presents the results generated in Chile and Colombia separately for the third quarter 2015. In third quarter 2015, net income attributable to shareholders totaled CLP62.6 billion increasing 10.8% quarter-over-quarter and 14.6% year-over-year. The financial results of CorpBanca in Chile include some expenses associated with the Colombian operations, which have to be excluded from our Chilean book in order to observe Chile's stand-alone results. Three are these adjustments: one, interest expenses in connection with the portion of the acquisition of CorpBanca Colombia since August 2012, that was not funded with new equity, that negatively impacted CorpBanca's NIM in our Chilean operation; two, amortization of intangible assets generated in the CorpBanca Colombia acquisition that affected operating expenses in Chile; and three, the impact of our fiscal hedge, which is a consequence of management's decision to hedge the impact of the volatility of the US dollar, Chilean Peso exchange rate in the net income attributable to shareholders, through its effect on taxable income related to the revaluation or devaluation of our taxable investment in Colombia.

The adjusted third quarter 2015 results present, in our opinion, the closest approximation of the Chilean operation on a stand-alone basis. The adjustments mentioned above are related to CLP5.5 billion associated with the funding for the acquisition of CorpBanca Colombia. CLP22 billion of hedge taxes, CLP2.7 billion of intangible assets amortization and integration costs in Colombia. Taking into account these adjustments, our estimated results for our stand-alone operations in Chile is CLP64.0 billion of adjusted net income in third quarter 2015.

Moving along to slide by 5 -- profitability. The trend in our returns on average asset and on average equity has changed since December 2013. This shift was the result of the consolidation of CorpBanca Colombia for a full year since 2013, and of Helm Bank for a full year since 2014; and the higher UF variation in 2014, an increase of 2.05% in 2013 versus 5.65% in 2014, along with low monetary policy interest rates in Chile. During third quarter 2015, return on average equity increased compared to third quarter 2014 and the industry average.

In the last 12 months ended September 2015, we achieved a return on average equity of 17.1% compared to 15% in the same period 2014 equivalent to an increase of 211 basis points. After being impacted by the capital injections to enable our organic growth in Chile, and our acquisitions in Colombia between the third quarter of 2011 and the fourth quarter of 2013, totaling approximately $1.57 billion, which represent 137.1% increase over the same period of time, our RoAEs have been recovering showing, one, the early stages of the ongoing merger process in Colombia; two, increasing results from Chile, despite a key fact of integration costs CLP12.9 billion year-to-date; and a special dividend payment on July 23, 2015, almost $400 million.

Our trend in returns demonstrates that greater business diversification has resulted in increasing revenue stream, as well as our focus on profitability.

Next slide 6, talk about our market trend. The chart below shows the evolution of our market share in both countries we operate. Total consolidated loans reached CLP14.7 trillion, as of September 2015, decreasing 0.7% quarter-over-quarter and 0.4% year-over-year. This trend is highly impacted by the negative translation effect COP/CLP. When considering the portfolios of Chile and Colombia separately in each local currency, total loans in Chile increased 1.8% quarter-over-quarter and 8.3% year-over-year, and total loans in Colombia increased 2.9% quarter-over-quarter and 13.4% year-over-year. After achieving a long period of sustained growth in both countries, last quarters have shown a slower pace focusing only in segments with a higher risk-adjusted profitability, that allow us to maintain healthy asset quality and at the same time a stable BIS ratio.

According to the SBIF, our market share in Chile, on an unconsolidated basis, was 7.2% in September 2015, reflecting a decrease of 21 basis points compared to September, 2014. In Colombia, despite the ongoing integration process related to the Helm Bank merger, our market share has maintained quite stable, reaching 6.2% as of August 2015, according to the Superintendencia Financiera de Colombia.

Moving along to number 7, talk about our asset quality. The chart below illustrates how both our consolidated total loan loss allowances over total loans ratio and separately Chile's total loan loss allowances over total loans ratio compared to the industry average in Chile. According to the SBIF, CorpBanca has maintained one of the lowest credit risk indices, total loan loss allowances over total loans, in the Chilean banking industry over the past five years, consistent with one of our core pillars related to high quality loan portfolio. We believe that our risk management processes and methodology enable us to identify risks and resolve potential problems on a timely basis.

Regarding provisions for loan losses, net provisions decreased 0.9% quarter-over-quarter, but increased 83.1% year-over-year. The quarter-over-quarter decrease was mainly the result of higher collaterals in the Panamanian portfolio and the devaluation of the COP that compensated higher reserves in Colombia to prevent deterioration given current situation affecting the gas and oil and related sectors. Our current exposure to oil and gas sector was barely 2.8% of our consolidated loan portfolio, of which 2.3% represented Colombian exposure to such sector.

In Chile, our provision for loan losses increased due to the downgrade of a corporate loan and the regularization of the number of defected students that require a 10% loan loss provision instead of 1% provision required for normal student loans portfolio, that were partly compensated by the release in provision due to regular loan portfolio sales.

The year-over-year increase is mainly explained by the depreciation of the CLP in third quarter 2015, higher provisions from Colombia for consolidation purposes only -- the regulatory criteria -- that we have to follow for the Colombian loan portfolio is the most conservative provisioning rule between Chile and Colombia. The downgrade of some clients in the corporate segment combined with the fact that in third quarter 2014 provisions for loan losses were lower due to provision related to our corporate portfolio.

Next slide number 8, continue to talk about asset quality. The following chart compares our consolidated non-performing loan ratio with the industry's average in Chile. As you can see, CorpBanca's high asset quality has maintained following the acquisition of CorpBanca Colombia in May 2012 and Helm Bank in August 2013.

Finally on slide number 9, our capitalization level. Following the approval of both CorpBanca and Itau Chiles ESMs a special dividend in the amount of CLP239.86 billion was paid on July 1, 2015. In that specific context, our capital ratios decreased from 11.8% in first quarter 2015 to 9.7% in second quarter 2015, and to 9.3% in third quarter 2015. As a result of the aforementioned dividend payment that impacted regulatory capital combined with higher negative valuation adjustments mainly due to translation effect in equity and higher risk weighted assets due to loan growth during the third quarter. Therefore, the capital ratio levels reported on September 2015, are temporary and limited to the period ending with the merger, that will occur no later than May 2, 2016.

Once the merger is consummated, the combined capital ratios will improve significantly boosted by current TIER I capital of Banco Itau and pending $552 million capital injection prior to the merger from Itaubanco. Furthermore the shareholders' agreement between CorpGroup and Itaubanco has a strict policy regarding minimum capital levels of the merged bank, requiring the maximum between 1.2 times above the regulatory minimum and the average of the three largest banks. Under the General Banking Act current definitions of capital requirements and risk-weighted assets, CorpBanca estimates that the combined BIS Ratio should achieve a range between 13% and 16% along with a TIER I ratio between 12% and 13%. The Chilean Ministry of Finance, the Central Bank of Chile, and the SBIF has announced a law amendment in order to align Chilean regulation for capital requirements to Basel II and Basel III standards, and it is expected a 7-year period for gradual implementation. Thank you.

(operator Instructions) Boris Molina - Santander Investment Securities Inc.

Yes, I have a question regarding your slide on capital ratios. That is the capital ratio after the merger, but before the minorities in CorBanca Colombia. And then, if I'm not wrong, you're paying around $333 million for the 12% something stake of core group in CorpBanca Columbia. Is this valuation going to be extended to the other minorities, and if you buy although all the minorities at that valuation, what would be the capital impact on the consolidated capital ratios, because the valuation appears to be something close to 3.9 times price tangible book value, and this would entail probably the creation of additional intangible assets in goodwill in the consolidated group and a weaker capital ratio. So, what would be the impact of the acquisition of minorities in Colombia on the capital ratios in Chile?

Just to split your question in two. First of all, we know that based on the transaction agreement, the only obligation of CorpBanca -- Itau CorpBanca is going to be the 12.4%, that it is obliged to acquire. The rest based on our understanding was an option that is already expired and there is no obligation to do that, but answering the second part of your question, you have to remember that when we did the PPA for the position of both Santander Colombia and Helm Bank, based on the way that we did the transaction we compute goodwill and intangible assets for the entire universe of shareholders. So, if there is any change in the valuation our estimation is that this not going to be a material impact in term of the goodwill and the intangible assets that we currently have. Also you have to remember, that because once both banks are merged, we are going to perform a reverse acquisition, we have to revalue the goodwill and the intangible assets of the previous transaction. So based on our understanding if there is any impact in the way that we currently compute, but the ratio, it shouldn't be material.

Okay. So what would be the status of the -- the Helm minorities in CorpBanca Colombia? If you have no obligation to offer them the same -- the same valuation that has been offered to a 12%, will there be an IPO or will there be offer of a different valuation. Is this something that we should expect?

Well, Boris, according to the transaction agreement, we have the obligation to offer them the same, and we did it and they declined. So that is a check for us in terms of obligation. In the future of course everything can happen, because we are always willing to have the full -- entire shareholders ways of CorpBanca Colombia. But in terms of obligation, our current obligation is what Eugenio mentioned, because the other one that as an obligation, it was declined by minorities.

Okay. Wonderful. Thank you.

Well, they thought that the price was too low -- that's the main reason. (inaudible) to re-evaluate that, and then they could possibly -- I don't know.

Okay, thank you.

Remember that in the capital ratios, we are consolidating with CorpBanca Columbia 100%. That is why the only impact what Eugenio mentioned coming from revaluation, not because of adding an additional portion of CorpBanca Colombia.

(operator Instructions) Juan Dominguez - Credit Corp Capital.

Hello, thanks for hosting in this invitation, I have some questions on the Colombian operation. First, Fernando, you can provide us some color on -- what are your expectations in terms of loan growth in local currency next year and also in terms of the cost of credits in Colombia. And also, we have seen here an increase in long-term rates in the deposit markets, but the DTF, which is at the end the benchmark REIT that is used to reprising of the loans, they have been quite stable despite the recent increases in the repo rate. I wonder, if you could provide us some guidance on what's the strategy (inaudible) asset and liability management, its scope with this apparent lower liquidity in long-term maturities -- in the deposit markets. Thank you.

Based on our current information and we have been seeing a lot of volatility in the rates and in the exchange rates, I mean deflation in Colombia, when we compared with 12 months. Our cumulative net interest margin for the period October 2014 up to September 2015, and we compare the same period for the past year that is October 2013, up to September 2014, the net interest margin just moved only one basis point in the operation in Columbia. So, we feel very comfortable that the way that we are managing [GAAP] in Colombia are quite stable. So, we do not expect to see a deterioration in our net interest margin in the next 12 months for example. And what is important is that we have to remember that, because we consolidate all our financials under the Chilean Peso, there is going to be of course a volatility, when we translate those results, when we do the consolidation of our books, and to give you an idea. The impact that we had been facing in term of our operation in Colombia, when we translate to Chilean Pesos for this year. If we use the same exchange rate, that we are in the market in 2014, that represents a lower result of equivalent to CLP7 billion. So, answering your question is from that point of view on net interest margin we don't foresee a problem and the volatility might come from exchange rate representation.

Okay, great. So -- in local currency your guidance for next year is unstable NIM. I wonder, if you can provide us some -- also some color on the strong results of October. The bank had a monthly profit of CLP24 billion, which is quite good. I wonder, if you can get us some -- some color on what happened there?

I mean the results of October are not different from the trend that we have been showing as we have been mentioning in our last two conference calls about results. We are absolutely in line with our profit plan for 2015. And what has been a trend for this year is that we have been outperforming largely the performance of the industry. We feel that we are going to be in line with our expected results in the next couple of months. And of course that is basically an impact of a stronger result in Chile because as we mentioned before, exchange rate -- when we translate result from Colombia are lower, and of course we know that based on what the (inaudible) out of the Central Bank has been reporting to the market. We still expect to have high inflation in Chile which of course improves results coming from the increase in the US, but also we feel that from that point of view of the commercial activities, we have been able to outperform our results in Chile.

Thank you very much. You [guys] have no further questions at this time. (Operator Instructions) You have no further questions. Please continue.

Well, thank you for joining our third quarter conference call. We are looking forward to our next one. Good bye.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.