Banco Itau Chile (ITCL) 2015 Q4 法說會逐字稿

Thank you for standing by ladies and gentlemen, and welcome to the CorpBanca Conference Call on the Fourth Quarter 2015 Financial Results. We have with us, 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 the conference is being recorded today.

And, we now pass the floor to one of your speakers, Ms. Labbe. Please go ahead.

Good morning. Thank you for joining our conference call for our fourth quarter 2015 financial results. 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 result could differ materially from what is discussed.

Please note that management discussion and analysis is based on our unaudited financial statements prepared in accordance with the Compendium of Accounting Norms of the SBIF pursuant to the Chilean Generally Accepted Accounting Principles, which conform with international standards of accounting and financial reporting issued by the International Accounting Standards Board to the extent while there are no specific instruction or regulation to the contrary by the SBIF.

In connection with the above, the original accounting treatment given to the fine imposed by the SBIF on CorpBanca on December 30, 2015 followed IFRS and IAS rules. Pursuant to such treatment, and as included in our 2015 financial statements submitted to the SBIF, the fine did not impact net income attributable to shareholders.

Notwithstanding the aforementioned, following instructions issued by the SBIF on February 8, 2016, CorpBanca had no other option than to comply with the SBIF's requirement in connection with the accounting treatment of the fine in our financial statement, which resulted in not complying with IFRS and IAS.

This way, and as instructed by the SBIF, we accounted for the CLP21.8 billion fine as an expense against our results, as informed by the Board of Directors in a material event notice on February 9, 2015. After this change in our 2015 financial statements, net Income attributable to shareholders decreased by 9.7% from CLP223.5 billion to CLP201.8 billion.

The SBIF's instruction was despite the fact that CorpBanca filed an appeal with the Santiago Court of Appeals requesting the rescission of the fine imposed by the SBIF pursuant to the provisions of the General Banking Act. CorpBanca is convinced that the fines were wrongfully imposed, according to the applicable laws and regulations.

Before starting with the presentation, I would like to highlight some merger milestones in fourth quarter 2015. As you are all aware, all the activities related to the merger with Banco Itau Chile have taken higher momentum after the extraordinary shareholders meeting that approved the transaction in second quarter 2015 and the SBIF authorization, granted in third quarter 2015.

The next milestone in the merger process was the announcement by CorpBanca and Banco Itau Chile during fourth quarter 2015 of the senior management structure for the merged bank, Itau CorpBanca. The new management structure is oriented towards enhancing both banks' main lines of business, ensuring efficiency and fostering integrated risk management. The new structure was built based on the commercial elements of both banks and is aligned with local industry's best practices, in order to boost the growth of the merged bank.

The new Management Committee, comprised by a team of Corporate Managers, will report directly to Mr. Milton Maluhy, Itau CorpBanca's Chief Executive Officer. This new Management Committee will be responsible to lead this important project as from Legal Day One. After this announcement, in February 2016, the new Management Committee appointed their direct report teams. In this context, integration working groups continued with the aim of completing the merger between March and April 2016.

Now, I will refer to CorpBanca's trend during fourth quarter 2015. To begin, I would like to highlight that in 2015, net income attributable to shareholders totaled CLP201.8 billion, decreasing 10.8% when compared to the same period of 2014. Adjusting for the CLP21.8 billion fine imposed by the SBIF on CorpBanca on December 30, 2015 which, as requested by the regulator, had to be fully accounted as an expense, the bank's adjusted net income in 2015 reached CLP223.5 billion, decreasing 1.2% compared to 2014, but exceeded in 100 basis points our budget for the period.

Commercial customer driven results in Chile and synergies already delivered in Colombia were partially offset by higher provisions for loan losses, a negative translation effect between Colombian peso and Chilean peso of our Colombian subsidiary, and the negative impact of a lower year-to-date inflation in Chile on net interest margin and higher tax rates.

Let's move to Slide 3. The chart below shows our cumulative 12-month consolidated net income trailing from December 2008 through December 2015, in Chile and Colombia. During the last 12-month period ended December 31, 2015, our net income reached CLP201.8 billion, a 10.3% decrease Q-over-Q and a 10.8% decrease year-over-year.

Still, this figures favorably compared to the Chilean banking industry, which for the same period showed larger decreases in net income of 13.2% and 11.6% respectively. Our Chilean operation totaled CLP155.7 billion and CorpBanca Colombia totaled CLP46.1 billion, equivalent to 22.9% of CorpBanca's consolidated net income compared to 15.3% in 2013.

On an adjusted base, our Chilean operation reached CLP177.4 billion, an 18.2% increase. While 2014 show stronger results from Colombia; during 2015, we have been observing higher than expected results from Chile and lower than planned results from Colombia.

These 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 accomplished despite all the activities related to the merger with Banco Itau Chile. Efforts that have been taking higher momentum after the extraordinary shareholders meeting approve the transaction and SBIF granted its authorization last quarter.

Next slide, page number 4. In fourth quarter 2015, net income attributable to shareholders totaled CLP42.9 billion, decreasing 31.4% Q-over-Q and 35.1% year-over-year. Adjusting for the aforementioned fine that was appealed, the bank's adjusted net income in fourth quarter 2015 reached CLP64.7 billion, increasing 3.4% Q-over-Q and decreasing 2.3% year-over-year.

The financial result of CorpBanca Chile include some expenses associated with our Colombian operation, which have to be excluded from our Chile's book in order to observe Chile's standalone results. For this purposes, we have made three adjustments namely; one, interest expenses in connection with the portion of the acquisition of Banco Santander Colombia that was not funded with the equity, that negatively impacted CorpBanca's NIM in our Chilean operation

Two, amortization of intangible assets generated in the Banco Santander Colombia's acquisition that affected operating expenses in Chile. And three; the impact of our fiscal hedge, which as a consequence of a management decision to hedge the impact of the volatility between the US dollar and the 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.

This adjustment to the Chilean operation present, in our opinion, the closest approximation of this operation on a standalone basis. The just mentioned adjustment are related to; CLP4.6 billion associated with funding for the acquisition of CorpBanca Colombia; CLP2.9 [billion] of fiscal hedge in US dollar; and CLP2.7 billion of intangible asset amortization and integration costs in Colombia.

Taking into account these factors, our estimated result for our standalone operation in Chile is CLP43.3 billion of net income in fourth quarter 2015. When additionally adjusted for the fine imposed by the SBIF mentioned above, adjusted net income for the standalone Chilean operation reached CLP65.1 billion, a 1.7% increase quarter-over-quarter and a 34.7% increase year-over-year.

Moving along to Slide 5, profitability. The trend in our returns on average asset and on average equity have changed since December 2013. This shift was the result of; one, the consolidation of CorpBanca Colombia for a full year since 2013, and of Helm Bank for a full year since 2014. And two, the higher UF variation in 2014 along with low monetary policy interest rate in Chile. During fourth quarter 2015, return on average equity increased compared to fourth quarter 2014 and the industry average.

In last 12-months ended December 31, 2015, we achieved a return on average equity of 16.2%, equivalent to an increase of 290 basis points compared to 15.7% in the same period 2014. After being impacted by the capital injections to enable our organic growth in Chile and our acquisitions in Colombia, between the third quarter 2011 and the fourth quarter 2013, totaling approximately $1.57 billion, a 137.1% increase over the same period.

Our return on average equity have been recovering showing; one, the early stages of the ongoing merger process in Colombia. Two, increasing results from Chile. Three, the special dividend payment on July 1, 2015. And four, the fine expense on December 2015. The $400 million special dividend payment had the most relevant impact on return on average equity, equivalent to a rise from 14.6% to 16.2%. Our trend in returns demonstrate that greater business diversification has resulted in an increasing revenue stream as well as our focus on profitability.

Next Slide, number 6, talk about our market share. The chart below shows the evolution of our market share in both countries we operate. Total loans reached CLP14.8 trillion as of December 31, 2015, increasing 1.2% Q-over-Q and 4.2% year-over-year. This trend is highly impacted by the negative translation effect of Colombian peso versus Chilean peso. When considered the portfolios of Chile and Colombia separately in each local currency, total loans in Chile increased 1.9% Q-over-Q and 7.0% year-over-year. And total loans in Colombia were flat Q-over-Q and increased 11% 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 higher risk-adjusted profitability. According to SBIF, our market share in Chile, on an unconsolidated basis was 7.2% in December 2015, reflecting a decrease of 26 basis points compared to December 2014.

In Colombia, the current economic environment has impacted our market share more than the ongoing integration process related to the Helm Bank merger, reaching 6.1% as of November 30, 2015, according to the SFC in 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 loan, and separately, Chile's total loan loss allowances to 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 to total loan, 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 risk and resolve potential problem on a timely basis.

Regarding provisions for loan losses, net provisions for loan losses decreased 6.6% Q-over-Q, but increased 2.4% year-over-year. The Q-over-Q decrease was mainly the result of the upgrade of some corporate clients, higher collaterals and extraordinary provision releases related to our Company segment, a decrease in provisions for student loans portfolio that were higher in third quarter 2015 due to a temporary increase in delinquency, and also a release in provisions due to regular loan portfolio sales and all of them in the Chilean portfolio that has allowed compensating higher results in Colombia to prevent further deterioration in the gas and oil sector.

Our current exposure to the oil and gas sector is 2.1% of our consolidated loan portfolio, of which 1.5% represented Colombian exposure to such sector. Nevertheless, CorpBanca Colombia provisions in fourth quarter 2015 benefited from a new regulatory standard for leasing operation that allowed them to release CLP6.2 billion in loan loss provision.

The year-over-year decrease is explained by provision releases, both in the corporate segment and in the individual segment; the latter particularly related to student loans in Chile together with the benefits of the devaluation of the Colombian peso that allowed compensated high provisions from Colombia. Those higher provisions in Colombia are due to the downgrade of some clients in the gas and oil sector that was partly offset by new regulatory standards for leasing operations that allow CorpBanca Colombia to release provisions as previously mentioned.

It is important to note that the regulatory criterion that we have to follow for the Colombian loan portfolio for consolidation purposes only, is to apply the most conservative provisioning rule between Chile and Colombia. This results in higher reserves in Chile for the Colombian portfolio which are even higher than the expected incurred loss for our Colombian portfolio.

Quarterly impacts of this regulatory criterion are enhanced when changes in provisions for loan losses under Colombian regulation are more conservative than under Chilean regulation.

We would also like to highlight that under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, fourth quarter 2015 provisions for loan losses do not include provisions related to the new SBIF's standard credit-provisioning model for residential mortgage loans that is effective in Chile since January 2016.

Accordingly to a change in accounting estimate under IFRS, the impacts have to be recognized prospectively and directly in the P&L of the period in which they apply. Therefore, the estimated new regulation impact will be approximately CLP5.0 billion as a one-timer expense in January 2016 that management estimates will reduce to half by the end of 2016.

Next Slide, number 8, continue to talk about asset quality. The following chart compare our consolidated non-performing loan ratio with the industry's average in Chile. As you can see, CorpBanca's high asset quality was maintained following the acquisition of CorpBanca Colombia in May 2012 and of Helm Bank in August 2013. Please note that according to SBIF criteria, for non-performing loan statistics prior to October 2015, those statistics were presented on an unconsolidated basis, though they did not include local nor foreign subsidiaries' non-performing loans.

Nevertheless, CorpBanca did include in its reports non-performing loans for CorpBanca Colombia using the same criteria, meaning on an unconsolidated basis, only the banks in Chile and Colombia. This SBIF criterion changed in October 2015, though since 4Q 2015, statistics for non-performing loans are presented on a consolidated basis.

In this context, also since fourth quarter 2015, CorpBanca's non-performing loans not only include CorpBanca Colombia's non-performing loans, but also our New York Branch, Helm Bank Panama and other local subsidiaries' non-performing loans when applicable. Therefore 4Q 2015, non-performing loans and non-performing loans ratios for CorpBanca and for the Chilean Banking Industry are not fully comparable to prior quarters.

Finally on slide number 9, our capitalization levels. Following the approval of both CorpBanca and Itau Chile's EGM, a special dividend in the amount of CLP239.86 billion was paid on July 1, 2015. In that specific context, our capital ratio decreased from 12.4% in fourth quarter 2014 to 9.5% in fourth quarter 2015, as the result of the aforementioned impact capital combined with higher negative valuation adjustments mainly due to translation effects in equity and higher risk weighted assets due to loan growth during the quarter.

Therefore, the capital ratios level reported in fourth quarter 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 1 Capital of Banco Itau Chile and pending $552 million capital injection prior to the merger from Banco Itau Unibanco.

Furthermore, the shareholders' agreement between CorpGroup and Itau Unibanco contemplates 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 private 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% to 16% along with a TIER 1 ratio between 12% and 13%.

The Chilean Ministry of Finance, the Central Bank of Chile and the SBIF have announced a new bill amending current laws in order to align Chilean regulation for capital requirements to Basel II and III standards, and it is expected a seven-year period for gradual implementation.

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

(Operator Instructions) Jason Mollin, Scotiabank.

Hello, everyone. Thank you for the opportunity to ask a question. Just if you could provide general comments on the operating environment in Chile and Colombia. I guess looking at your numbers, if we strip out the impact of the depreciation of the Colombian peso versus the Chilean peso, we had loan growth for your book in Colombia growing 11% year-on-year, and in Chile it would be 7%. If you can talk about this kind of the growth environment in the banking sector specifically, and maybe, your outlook for economic growth.

And you made a comment in the presentation when you were discussing your market share, particularly in Colombia that the loss of share or specifically, you said that the current economic environment has impacted your share more than the integration process related to the Helm Bank merger. Maybe, if you can give us some more color about the merger and this current economic environment you're describing in Colombia?

Hello, Jason. This is Claudia. Okay, so indeed, as we have seen probably in the last two years both in Chile and in Colombia, we have decreased our pace in the GDP growth. And in that context, we are not very optimistic for the loan growth in Chile, given by we are not very optimistic of the GDP growth for Chile in 2016.

Our expectation is more in the low range of the target -- of the Central Bank target. In that context, we do not foresee more than 2% real GDP growth in Chile. And accordingly with that, we estimate no more than 1.5 times real growth for the average of the Chilean banking industry, which, if we add the expected inflation, wouldn't represent more than 7% loan growth for the banking industry in 2016 in Chile. In Colombia even, we have been seeing a similar trend, the rates are higher.

We expected for 2015 in Colombia, initially when we were preparing our budgeting for 2015, that was late 2014, we were targeting a loan growth in Colombia for the average of the industry of 15%, and it was probably more in the range of 10% to 11%. We do not have still the statistics for the whole banking industry in Colombia, but we think that this should be in that range, which certainly is lower than the expected 15%, but still it's a two-digit growth.

And probably, we will be -- for our bank in Colombia, with a similar loan growth for 2016, probably in the range of 10% to 12% loan growth, given what we expect also for the economic growth, for the GDP growth in Colombia, which is in the neighborhood of more than 3%. But the difference is that they have a larger elasticity from GDP growth to loan growth compared to Chile, and that makes the difference.

So still, it is not a bad growth rate, but lower than expected and we think that it's lower than the potential of that industry. So those are our expectations for economic environment and therefore for loan growth in the two countries.

(Operator Instructions) Anibal Valdes, Barclays.

Thank you guys for the opportunity to ask questions. Claudia, I have a question regarding capital of the bank. So, can you please provide a little bit more detail how the merged bank, I mean CorpBanca and Itau Chile, you get to a 12.9% TIER 1 capital ratio. Just to give you an order of magnitude, I get to a much lower number. And so, I just wanted to make sure, I'm not missing something there.

And secondly, have you guys made any estimates of what would be your Basel III like capital ratios for the merged bank going forward, given the anticipation for a new banking law in Chile that will probably modify the definition for capital and also capital solvency requirements. And finally in that line, could you provide any color on what would be the dividend payout ratio that you guys are forecasting for the merged bank going forward? Thank you, Claudia.

Okay. So, what we have done to estimate the pro forma that we have been providing for capital and also for capital ratio are based on the only pro forma available today, which is the one that we'll present at -- for the shareholders meeting to approve this transaction. And accordingly, that pro forma was prepared following the same rules that we will have to follow once we are merged, meaning that from an accounting point of view, this transaction is a reverse acquisition. Why reverse?

If reverse is compared to what is going to legally happen, legally is CorpBanca the surviving legal entity, therefore CorpBanca, as you know, because it's part of the transaction agreement will issue new shares and those shares will be given in exchange to Itau Unibanco for the assets or liabilities on the equity of their banking subsidiary in Chile.

Doing that, CorpBanca will absorb Itau Chile. Itau Chile will disappear. CorpBanca will be larger and immediately will change its name to Itau CorpBanca. So that is how we'll have that.

But from an accounting point of view, this transaction, which is not an acquisition, it's just a combination of two banks, that is why we add the equities and we add every line, it's an acquisition and it -- as an acquisition, you have to follow the rules of acquisition, which mean that in the combination of the financial statements, you will have one bank at book value and the other bank at fair value.

So, the question is, which one if it is not an acquisition? And for a minute IFRS says yes, it is not an acquisition. Therefore, what would be more intuitive, which is to assume that CorpBanca is the legal surviving entity, therefore CorpBanca should be the absorbing accounting entity, it's not what happens. And that is why it is reverse, because IFRS define this as, no one has [purchased] to the other, then the acquirer is the one that have to control.

And as the control is going to be in the hands of Itau, therefore Banco Itau Chile is the accounting acquirer, therefore the financial statement of Banco Itau in this transaction will be at book value, but CorpBanca has to be faired value.

And that means that we will create, it has to be create -- it will be a revaluation of CorpBanca. And therefore, there will be a difference between that new fair value and the book value. Therefore, we will have intangibles and goodwill in this transaction. But if you create those new assets on the balance sheet, how do you make -- it continue to be much assets equal to liabilities plus equity, it won't match. Therefore, there is a [mirror] account that has to be in the equity, a reserve account in the equity, reflecting what has happened in the asset side.

And that is why, and probably that is the reason what you are missing today, because on the equity side, you will have the impacts of the shareholders, the transaction agreement, which means to compute current capital of CorpBanca plus current capital of Itau Chile, plus spending capital injection in Itau Chile, but you probably are missing this reserve created because of the revaluation of CorpBanca.

So that is how -- this is the accounting treatment for this transaction. It's not, probably you haven't heard very often because not too many mergers are from this kind, usually mergers are from the regular kind, one bank acquiring the other. So there is really a fair value, someone pays for that, that means that someone has to finance that with, I don't know, a capital increase and/or debt or one of them or both of them.

So I would say that that's the main difference. And that is how the accounting treatment apply for this transaction. And of course, the numbers that we have worked with, and as you can see in the older footnotes that we'd put in our presentations and reports are expressing that we are based on that pro forma, prepare for the shareholders' agreement, which are based on 2014 numbers.

Of course, we are today, and the input for the first combined financial statement will be the December 2015 financial statement with, of course, a different net income, a different exchange rate, and that is why today, we do not have any update on that, because we are working on the process for the merger, which will give us, at the end of the day, the updated and the real and the one that is going to be applied for the merged bank.

So, with those numbers, the one I have mentioned, with that pro forma, is how we compute the capital and therefore, how we compute according to the still local regulations, the BIS ratio, and you can also calculate the TIER 1 ratio.

According to the dividend on the payout, just to remember, the shareholders agreement that is already public, but will be executed once we are merged, has a very strict policy regarding minimum capital ratios and it's very important, and I'll mention that before explaining what will happen in terms of dividend or payout dividend. The policy for minimum capital ratios for the merged bank is that for the merged bank, at all times, we need to be in compliance with a minimum capital ratio, which is the largest between two numbers; 1.2 times the regulatory minimum or the average of the top three largest private banks in Chile, whichever of the two numbers is the largest, then that is the minimum for the merged bank.

Therefore, if we compute those two numbers today, we will have that the largest number is the average of the top three private banks, and meaning that we have to compare to that. Given the capital increase that we will receive and I am just comparing with CorpBanca, we will have all the current capital of Itau plus the capital injection and we will be certainly in a very comfortable capital position and therefore, we will be fulfilling the minimum.

Once the minimum capital levels are fulfilled, then the dividend can be paid, and in the shareholders' agreement, there is a target dividend; again, only can be paid if the minimum capital ratios are fulfilled and that is a number, it's an amount, it's not a payout ratio, it's a target number which is $307 million. So, that number will be paid only, as I mentioned, if the minimum capital ratios are fulfilled.

Of course, in the early stages of the merger, while we are still in the process of getting the synergies, if you measure that dividend as a payout, it will represent a much larger payout ratio than the current one that CorpBanca has. But it will convert after a three year time, which is the period that we have determined to get the synergies and also not to have all the one-time expenses related to that, then it should be in the range moving to 50%, probably will be in the range of 55% to 60% up to that time, but then, it should convert to a similar payout ratio, similar to current CorpBanca, I mean CorpBanca's similar payout ratio. So, that is regarding your question on the dividend payout and how we compute the pro forma. And then, Eugenio will address to you regarding the Basel III requirements for Itau CorpBanca.

In terms of the implementation of Basel III in Chile, it is very important to highlight that this new bill amending that Claudia mentioned during her presentation is not known yet, which is going to be the final proposal. So, what we're doing here and the analysis I'm going to do is based on what is mentioned in the press and what is discussing in more reduced groups.

But in general terms, and as a bottom line, I would say that because we expect this to be a process that is going to have a transition of several years based on that, we shouldn't have any capital deficiency when Basel III is fully implemented in Chile. What we know so far is that this amendments that are going to be proposed are more in the line that a lot of things that today are defined in the banking law itself are going to be delegated to more technical agencies, such as the Central Bank or the Superintendency of Banks.

So, for example, the risk weight asset is something that we still do not know how it is going to be customized to the realities of a Chilean banking industry, but the most significant change from the point of view of the economic equity is the type of economic equity that we are going to be allowed to use, for example, if we follow a strictly Basel III, the additional TIER 1 capital, this type of hybrid securities is something that we don't know if the banking industry in Chile will have that enough to create a market for those type of equity type TIER 1 capital type.

We know that intangible asset should be deducted from the core equity to compute this. So in general terms, if we make an assumption that in Chile, Basel II and Basel III standard methodologies are implemented without any customization, our forecast is that for the next five or six or seven years, we shouldn't have any problems to fulfill the requirements of Basel III plus the restriction that Claudia mentioned that are part of the transaction agreement and the shareholder agreement.

What is important to say is that, of course, those numbers are very sensitive regarding the speed of the growth of the market that the bank we participate. But if we follow the trend, we shouldn't see a very significant increase in credit risk-weight assets and what is going to be relevant is, a lot of things that today from the point of view on market risks are handled in a different way than you would probably do under Basel II, III because in Chile today, there is not yet a capital requirement specific for market risk.

So for example, we have some long position in our investment in Colombia, which are denominated in Colombian pesos which create a potential gap that if we are required to have equity for market risk purposes, we would hedge and eliminate completely that equity requirements. So in general terms, this is not yet clear how it is going to be implemented, but if it is implemented the way it is in other jurisdiction in Europe, for example we should have no problem to fulfill this. This is what we know so far.

(Operator Instructions) Alonso Aramburu, BTG Pactual.

Hi, good morning. Thank you for the call. Just, can you give us a quick reminder of, I mean we know the merger is supposed to close before May 2, but I understand you were trying to close the transaction in early March. Can you just give us an update on what is the expected date of the closing of the transaction?

Hello, Alonso. Yes sure, as you know, we had an internal target for the merger in order to align the efforts and of course, not to be close to the deadline. And in that sense, we continued to work with the same date, nevertheless, it doesn't necessarily mean that that internal date will become the official date for the merger. But for us, it's really not an issue since we know and we are very sure that we will be within the timeframe this transaction was announced.

So as we have mentioned also in the quarter release, we are expecting that the Board will officially announce the merger date, as official merger date, between March and April, and therefore, that will become the Legal Day One for us. And well, what I can tell you regarding that is that all the integration groups continue to work, as I mentioned. Also internally, we continue to be focused for the transaction in this quarter. But as I mentioned, it really doesn't matter since we are already going to be within the timeframe approved by shareholders and by the SBIF.

Okay, thank you. And just, also the follow-up on some of the steps of the transaction. Once you have the Legal Day One, you need to do a tender also for the Colombia minorities. I mean, what's the timeframe for that? When will that -- do you expect it to happen?

Well, it already happened. It happened the month after the transaction was announced, and I am talking about February 2014. And at that time, our obligation was to offer to the minorities that were not tied to the transaction agreement, meaning basically Helm Corporation.

And we offer them, of course to buy at the same price, and they decline that. And the timing for that offer expired in August 2015. And so, so far as they had no obligation to sell and they declined the offer, so far the only obligation for Itau CorpBanca and on the other hand, also for CorpGroup to sell is that portion, is the 12.4% ownership that CorpGroup has in CorpBanca Colombia.

They have the same expiration date, but of course, according to the transaction agreement and the amendment that date was extended until January 2017. So, that acquisition cannot be performed before the merger, since as you know, we have to comply with an active limit according to the Chilean banking act, regarding investment abroad. And according to that, the investment abroad cannot represent more than 40% of our regulatory capital.

Since today, we do not have room in that limit, any additional acquisition requires additional capital in Chile. Therefore with the merger, we will have room in that. So once we are merged, we can apply for the approval of that acquisition, and we have to follow the same process of the previous acquisition that we have done in Colombia, we have to apply with the SBIF and the Central Bank. Only when they approve that then we will or Itau CorpBanca will be able to complete that, and so that's it. So, at some point, we will increase our current 67% ownership in CorpBanca Colombia to roughly 78%.

Okay. Thank you on that. And also on the operating side in Colombia, I mean, looking at the numbers, we've seen the numbers in the Colombian [regulation] through November or your numbers through the end of the year, it looks like your return on equity in Colombia is around 10%, which I believe is a little bit below the targets what you had expect -- for your expectations in Colombia. I mean, are you still expecting ROEs in Colombia standalone to be in the mid-teens, and why do you think the ROEs have been relatively low this last few quarters?

It is difficult to forecast right now, a return on equity in the Colombian operation. It is clear that there are some signs that loan loss provisions are higher than the one that we expect for a longer period of time. But what we have is that, we are in the last phase of the integration. So, if you ask me, for 2016 and 2017, I wouldn't think we will see something very different to the numbers that you are mentioning.

But of course, the potential that we see in the Colombian operation in the Colombian market is huge. So we expect that in the future, the return on equity will be in line with our expectation. What is important is to remind you that tax rates in Colombia have been growing up. So, it is necessary to adjust that return on equity including that impact, because of course, the number that we forecast three years ago were based on a different tax structure.

But as I mentioned to you, the big thing that we are seeing is the loan loss provision level are not growing faster than the rate that we have been seeing in the last six months, but it is a challenge and we have to be very, very careful regarding our great quality, something that for CorpBanca at least has been a very important element in its strategy and growth strategy.

Yes, that definitely makes sense. And that increasing provisions, is it purely related to the oil and gas sector, as you mentioned some of that in the press release or are you seeing broader delinquencies in other categories?

What we are seeing is in line with what we have been talking in our last conference call. But our feeling is of course that if you have a relevant sector that have been facing these challenges, that thing start to spread out the economy. So, what we think is that in 2016, what we're going to see are the secondary effect of that impact. So, that means that we are always going to have probably cases that we are not foreseeing at this moment, because that is the nature of the credit risk.

But in general terms, I would say that this year, we think that our loan loss provision expense in Colombia will be at the same level that we are currently seeing, but probably, they are going to come more from this indirect impact that I mentioned before.

Okay, great. Thank you very much.

Thank you very much indeed, sir. And at this point, there are no further request for questions. So, I'll pass the call back to you for closing remarks.

Okay. So, thank you very much for joining our fourth quarter conference call. We are looking forward to our next one. Good bye.

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