Banco de Credito e Inversiones

SGO:BCI

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, everyone, and welcome to Bci’s First Quarter 2019 Results Conference Call. Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the company's financial and operating performance. We undertake no obligation to update and maintain updated any such forward-looking statements after the date of this conference call. All projections are subject to risks, uncertainties and other factors that could cause actual results may differ materially from our current expectations. Furthermore, please refer to the detailed note in the company's presentation disclaimer regarding forward-looking statements.

Please note, this event is being recorded. I would now turn the call -- I will now turn the call over to Mr. Andrés Atala, Bci’s Head of Investor Relations. Please go ahead, sir.

[Andrés Atala S., executive]

Thank you. Good morning to all of you, and welcome to our first quarter 2019 conference call. My name is Andrés Atala, Head of Investor Relations. And today, I'm joined by Jose Luis Ibaibarriaga, Bci's CFO; Daniel Kushner, CFO of City National Bank of Florida; and Sergio Lehmann, Corporate Chief Economist. The figures on this presentation were prepared based on Bci’s consolidated financial statements in accordance with the International Financial Reporting Standards methodology and the regulations of Chile's Superintendency of Banks and Financial Institutions.

Now I leave you with our Corporate Chief Economist, Mr. Sergio Lehmann, who will take you through the main macroeconomic figures.

[Sergio Lehmann, executive]

Thank you, Andrés. The Chilean economic growth was 4% in 2018, above potential estimation of 3.2%, reducing the capacity gap of the economy. In 2019, however, the global scenario has become more complex, recognizing greater uncertainty, concerns about how negotiation between U.S. and China will conclude and weaker economic fundamentals in some emerging countries. This has led to a decrease in the world's GDP growth perspective and volatility increase in emerging financial markets. Nonetheless, the Chile risk premium remains at historical low levels, recognizing strong economic fundamentals and high liquidity in international markets. The Chilean economy grew 3.6% year-on-year in the fourth quarter of 2018, revealing less dynamic private consumption and exports, while investment maintained a positive momentum. Looking forward to 2019, lower external growth will lead to less dynamic exports mainly related to the mining sector. We expect that investment will continue to be the main driver of economic growth in the next quarter, growing at 5.7% in average during the year. We estimate 2019 GDP growth to be 3.2%.

A more complex global scenario, which incorporate a decreasing GDP growth and domestic structural factors, has impacted expectation over the Chilean economic performance. We expect, however, that the tax modernization proposal of the government will be approved by the end of this year, driving to a stronger confidence, higher investment and slight recovery of growth to 3.5% in 2020. According to economic deceleration perspective and low inflation pressures, the Central Bank of Chile will maintain the monetary policy rate in 3% in the coming quarters. At the end of the year during 2020, the Central Bank will gradually increase their monetary policy rate to 3.35%, our estimation of the neutral interest rate. Inflation will be cut slightly to 2.7% in December 2019 and reach 3% efficient target at the end of 2020. U.S. economy will grow around 2.3% in 2019, still above the estimated potential growth and in line with [ comparability ] to a more sustainable growth rate. U.S. economy rose 3.2% preliminary in the first quarter of 2019, above estimates, reflecting lower risk of an abrupt slowdown in the economic performance. Private consumptions will remain as the main driver of growth, maintaining high rate performance, thanks to a strong labor market, although gross investment will show some deceleration. The Federal Reserve have already projected that it would maintain the [ indiscernible ] rate into the range 2.25% to 2.50% in 2019 near the neutral estimated interest rate.

The state of Florida grew 3.5% in 2018, above the U.S. national average. Construction and real estate are the main contributors to GDP growth in 2018, followed by trade, retail and services. Personal consumption has been the main driver due to the stronger labor market. We expect the financial and business services, with construction and real estate, will continue to be the most dynamic sectors in 201. Then, 2019 GDP growth will be higher than the national average, being around 2.5% to 3%.

Now I will leave you with José Luis, who will continue with the presentation.

[José Ibaibarriaga Martínez, executive]

Thank you, Andrés, (sic) [ Sergio ].

We will now go over Bci's first quarter highlights. In the first quarter of '19 -- 2019, we managed to increase our net income by 8.85%. We would especially like to highlight the contribution of the [ subsidiaries ] to a net income accounting for 50.24%. We are particularly proud that more than 30% of this income comes from Florida, confirming our decision to internalize the bank, which began with integration of City National Bank of Florida

[Technical Difficulty]

and was reinforced with the purchase of TotalBank in 2018. After a 3-month period of Financial Services integration, it has already contributed almost 10% to the TotalBank's operating income. Regarding our efficiency ratio, it improved nearly over 300 basis points this quarter to 47.85% in March. Reaffirming that it's one of the main goals for Bci.

I would also like to highlight the last shareholders' meeting held on April 3. It was a new election of Bci Board of Directors for the next 3 years. This year, Mr. Miguel Nacrur was elected as Independent Director in replacement of [indiscernible] who fulfilled the maximum term established in the regulation. The same meeting agreed to distribute a dividend of CLP 1,000 per share corresponding to 34% of the profit in 2018 and also distribute 5.7 million bonus shares.

In order to deliver a personalized value offering to each customer, using an omnichannel approach has been used the opportunity to extend the benefit of digital transformation to our customers, incorporating Bci Nova and Bci Móvil to Bci service platform. This gives those customers access to the full range of the bank products and services to all our branches throughout the country and to all our digital channels. Lastly, once again, Bci received an award from the Corporate Reputation Business Monitor, Merco, for being the most responsible company with the best corporate governance in the country.

Please move on to the next slide. As of March 2019, Bci had assets of nearly $61.5 billion. Our assets abroad account for 27% of Bci’s total loans, where City National Bank of Florida represents 24% of our assets. Our loan market share is 17.05%, including City National Bank of Florida, and 13.98% in the domestic market, this taking into consideration the incorporation of the Walmart Financial Services loan portfolio last December.

This quarter, Bci has a strong consolidated bottom line of $176 million. It is important to mention that this net income includes a nonrecurring effect after selling what was left of Credicorp's shares with an impact around $12 million in January. Second, a decrease in tax due to the appreciation of the Chilean peso against the U.S. dollar, which in turn reduced the value of Bci investment abroad resulted in a favorable impact in terms of taxes that do not affect the rest of the financial statement. I would also like to highlight the bank soundness, reaffirming our commitment to maintaining sound capital ratios, which was evident in December with a Tier 1 capital ratio of 10.15%.

Please move on to slide -- next slide. Regarding our Digital Transformation plan, the aim of our strategy is to be leaders in the omnichannel experience and expand boundaries, to generate deeper relationships with clients, anticipating their needs, delivering customer solution in a fast and combinant way, taking advantage of the ecosystem.

Please move to Slide #9. We will also like to mention the achievement of our MACH platform at the end of this quarter, which has a positive position in the bank as a leader of financial inclusion in Chile. MACH is a powerful financial inclusion platform completely free, which solves important needs. On one hand, people can withdraw their cash when they want in any Bci ATMs and have access to the functionality of a prepaid card when using MACH online and abroad to access to the services, such as Uber, Netflix, Spotify, AliExpress or Amazon. This app is now used by almost 1.2 million users. And we have used more than 700,000 MACH prepaid cards, which account for 50% of the numbers of international credit card operations in the bank. In addition, I would like to highlight that MACH continues to be ranked as the top downloaded Chilean app at stores with an excellent user rating.

Please move to Slide #10. We will now go through the main figures in our domestic market operation. This quarter, operating revenues increased 16.1% mainly due to the incorporation of Financial Services, a better performance in commercial area and a positive result of the financial division.

In Slide #11, in the domestic market, our loans grew 12.6% including the acquisition of Financial Services and 9.2% if we exclude this effect. Commercial loans grew 9.5% year-over-year. Bci has grown as a result of a deep knowledge of customers. This is an -- this is in addition to innovative initiatives such as 360 connect, a developed platform based on the needs of our clients, facilitating the financial management and greatly improving their experience. In the consumer segment, we have grown 8.2% year-over-year and 31.7% adding the Financial Services portfolio. Mortgage loans grew 9.9% year-over-year in the domestic market. Furthermore, as we mentioned in our last call, we expect to grow between 9% to 10% in the domestic market in terms of total loans, taking in consideration a 3.2% GDP growth and 2.6% inflation rate as Sergio discussed earlier.

Please move to next slide. Regarding Financial Services, the consumer loan book grew 23.4%, where we want to highlight the excellent and flawless integration process last December. Positive client reception of the Walmart Chile-Bci partnership, incorporation of positive market debt, improving information and customer targeting, increase in the average ticket in relation to the super cash advances product, the growth in this segment is a reflection of the implementation of commercial initiatives. Regarding risk management in Financial Services, it is important to note that nonperforming loans accounted for 3.8%, mainly leveraged in the collection through digital channels.

Please move on to Slide 13. In the domestic market, Bci’s net interest margin was 3.74% with a fee income ratio accounting for 23.78%. The higher net interest margin is mainly explained by the growth of customer loan book after incorporation of Financial Services, which possibly impacted the bank's margins. Additionally, the spreads of new credits in the commercial and consumer segments were increased this quarter due to the implementation of our corporate profitability plan, impacting nonperforming loans [ possibility ]. Despite the lower fee income ratio due to the higher NIMs, we want to mention a 17% increase year-over-year of net fees, also explained by incorporation of Financial Services operation.

Please move to Slide 14. Let's continue with the provision expenses. In terms of risk this quarter, our provision expenses were $174 million. This increase in provision was due to the following factors: one, provision expenses for $36 million from the Financial Services operation; two, in addition, it was necessary to increase allowances by nearly $3 million for Bci customers who were also clients of Financial Services and have higher delinquency levels; third, the irradiation effect, and the amount was already considered in our business case; third, the incorporation of a big retailer credit card information last December also had an effect affecting -- having new customers' data to our models. As of March 2019, additional provisions of $21 million have been made as an anticipation of the regulatory requirements for standard models. It should be note that the standard models means that all banks tend to have the same average provision index without recognizing the particularities of each bank with respect to the risk profiles of the portfolios, clients or product mix. Despite this aforementioned increase, if we compare the ratio after discounting the provision from Financial Services and additional allowances, the rise compared to the same period last year was 5%.

Please move to Slide 15. Nonperforming loans were 1.88% this quarter, an increase of 25 basis points year-over-year. Regarding consumer loans, this ratio reached 2.05%. However, having the Financial Services portfolio, the figure rises to 2.38%. The increase can be attributed to an adjustment figure after incorporating Bci Nova to methodological improvement made in November by incorporating more conservative risk criteria. The integration process from Nova to Bci has implied a greater variability of the portfolio that we expect to regularize in the coming months -- that would be regularized in the coming months. Regarding risk management in Financial Services, it is important to note that nonperforming loans have remained below 4%, 3.8% in March, mainly leveraged in the collection through different channels. After becoming part of Bci, full digital collation was implemented this quarter. Nonperforming loans were higher in the commercial segment this quarter mainly driven by a few customers in the commercial segment who fell under the insolvency and re-entrepreneurship law that we expect will normalize in the next few months. Lastly, you can also see that the mortgages nonperforming loans ratio was 1.22% this quarter.

Please move on to Slide 16. The year's operating expenses were $269 million, growing 10.1%, excluding City National Bank of Florida. Regarding this increase, it's important to mention that $25 million correspond to the Financial Services operation. Excluding these expenses, the growth for the quarter would have been around 1%.

Please move to Slide 17. In terms of our local efficiency, we were able to reduce this ratio to 48.1%, in line with our commitment to reducing the efficiency ratio and bringing it to a level of 46% by 2020. Net income amounted to $127 million for operations in Chile. Despite the increase in the financial margin after the incorporation of Financial Services, higher income from fees and decreased taxes due to the appreciation of the Chilean peso, the lower net income is mainly explained by a higher base in 2018 when the effect of Credicorp shares -- given the effect of Credicorp shares.

Our return on average equity and return on average assets reached levels of 13.1% and 1.03%, respectively, including net income of City National Bank of Florida. It's important to mention that this return on average equity considers consolidated net that increased by 8.85% and a higher equity of approximately $600 million, considering last November's capital increase.

Now I will leave you with Dan Kushner, CFO of City National Bank of Florida.

[Daniel Kushner, executive]

Thank you again, Jose Luis, for the opportunity to join you on this quarterly earnings call to review City National Bank's performance over the past quarter. Good morning, everyone. My name is Dan Kushner. I have been City National Bank's CFO for the past 12 years. We are pleased to join José Luis, Andrés, Sergio and the rest of the Bci team on this call.

As I have mentioned before, we are proud of the growth and transformation that's taken place in CNB over the last 2 years as we continue to build the premier Florida banking franchise. After working diligently in 2018 to fully integrate TotalBank and optimize the transaction synergies, I'm eager to discuss our first quarter results with you as they clearly demonstrate our ability to serve as consolidator in one of the best markets in the United States.

Please turn to Slide 21. Q1 was another strong quarter with strong balance sheet results that translated to strong earnings as well. Allow me to point out some of the financial highlights for the most recent quarter. Looking at the balance sheet, total assets increased by $457 million in the quarter with the investment portfolio contributing $373 million of that growth. Loans and leases increased by $217 million in the quarter and was substantially funded by $141 million of DDA growth.

Moving to the income statement. Net income totaled $38 million for the quarter, a 47% increase over the prior year. Core earnings increased by nearly $25 million or a more significant 64% year-over-year since core earnings does not consider the impact of $6 million of quarterly intangible amortization resulting from the TotalBank transaction. The realization of synergies from TotalBank is clearly demonstrated by the $4.7 million reduction in expense in Q1 '19 versus Q1 2018 for City National Bank and TotalBank combined. Looking at the key metrics, you will see that capital remains a strength, asset quality is very strong and all of our profitability ratios demonstrate a favorable trend.

Please turn to the next slide. 76% of our revenue was generated by our loan and lease portfolio, in particular CRE loans, which comprise 42% of generated revenue. This was followed by commercial loans at 16% and residential loans generating 14%. Our investment portfolio is also a strong contributor to our revenues, generating 15% of revenues as well. Fee revenue continues to be an area of opportunity as we move forward. In July, we launched our wealth management unit, and we continue looking for opportunities in the secondary loan market to generate fee income in the future.

Moving to the balance sheet. Loans comprise 70% of our assets as of March 31. On the liabilities side, deposits are our primary source of funding at 77%. Other borrowings are at 10% and primarily are comprised of FHLB advances. Turning to the composition of our credit portfolio. 72% of our loans have real estate collateral, while the commercial and industrial portion representing 20% of the portfolio are substantially secured by other company assets. The real estate portion is well diversified, and the commercial real estate segment is further diversified by property type, with no one property type representing more than 20% of the commercial real estate segment. Customer deposits constitute 82% of our funding liabilities, and DDAs continue to be one of the largest components comprising 32% of customer deposits and 30% of all deposits including broker deposits. Money market accounts have become the largest segment of customer deposits at the present time. Deposit generation continues to be a priority for us, and we are focused on initiatives to maintain deposit growth as one of the bank's strengths moving forward.

Please turn to the next slide. Our loan portfolio increased by $205 million in the quarter, while our lease portfolio increased by $12 million. Our loan growth was driven by organic loan production by all of our lines of business. We had a strong quarter generating noninterest-bearing deposits, which benefited our net interest margin as you will see shortly. Our noninterest-bearing deposits increased by a strong $141 million in the quarter. Noninterest-bearing deposits represent 30% of the total deposit base. Total deposits increased by $155 million due to a decline in interest-bearing customer deposits that was driven by some seasonal outflows, which we temporarily filled with broker deposits. Our primary focus, however, is on creating value through the ongoing generation of noninterest-bearing deposits.

Please turn to the next slide. City National Bank has grown its loan and deposit base consistently over the past 4 years. The loan and deposit growth rates over the past 4 years are 25% and 27%, respectively. Tier 1 capital has grown as a result of the bank's strong earnings and was supplemented in 2018 with Bci’s $570 million capital contribution to facilitate the TotalBank acquisition and ensure the bank has sufficient capital to meet its organic growth needs in the short and medium term.

Now please turn to Slide 25. Our net income for the first quarter totaled $38 million, a 47% increase over the first quarter of 2018. Our core earnings improved by a higher percentage of 64%, since the $6 million of quarterly intangible amortization resulting from TotalBank transaction are not included in core earnings. You can also see that the strong loan and noninterest-bearing deposit growth drove a quarter-over-quarter increase in net interest income of $2 million. Additionally, there has been a significant decline in noninterest expenses, since substantially all transaction-related expenses were incurred in 2018.

Please turn to the next slide. On Slide 7, you could see that all profitability ratios, return on average assets, return on equity, net interest margin and the efficiency ratio all demonstrate improving trends. The normalization of the 2019 ratios is primarily due to the impact of the TotalBank intangibles, which is primarily the amortization of goodwill. The strong growth in noninterest-bearing deposits translated to a 4 basis point increase in NIM for the quarter to 3.09%.

Please turn to the next slide. The positive synergies created by the TotalBank transaction are clearly reflected in our Q1 results. The total number of FTEs between the 2 institutions declined by 73 and added after the planned position of new positions. The reduction of banking centers has not been fully completed with reduction of 12 banking centers. Expense synergies are now being realized, as the reduction in operating expenses of the combined institutions is $4.7 million in Q1. Annualized, it will be $19 million in savings.

Please turn to Slide 28. Finally, allow us to give you a summary of CNB's performance during the previous years. As you can see from these figures, we have consistently produced strong results over the last 5 years and expect to continue to do so. While we have discussed many of these metrics already, please focus on the asset quality ratios on this slide. Our NPLs are at significantly low levels, comprising only 0.3% of our total loans. Our normalized ROAA and normalized efficiency ratio also demonstrate a continually improving trend.

Let me conclude by commenting on what we expect in 2019 and our key priorities going forward. Continued focus on regulatory excellence and asset quality, this is fundamental to our business; we will continue to invest in risk management; enhanced focus on sales effectiveness in order to continue to generate consistent low-cost deposit growth that will enhance our NIM and drive fee income; diversification along business and geographic lines will continue to be a key part of our strategy; continuing to generate new business opportunities, such as we did with leasing and wealth management and consolidating our position in Tampa and Orlando. The management team remains focused, and we are confident that CNB will continue to produce results for Bci as we expand our teams and our business.

In closing, CNB continues to be well positioned as we focus on building the iconic Florida banking institution. We thank all of you for your time today. We look forward to the next time we join you on an earnings call.

And now let's turn the call back over to the Bci team for final thoughts and a wrap up.

[José Ibaibarriaga Martínez, executive]

Thank you very much, Dan, and thank you all, City National Bank team.

Bci opened its first Nace entrepreneurship center. I would like to mention that we are really proud that we have recently opened the first Bci entrepreneurship center, providing integral support to relevant issues that entrepreneurs need to successfully develop and promote their projects. This center emerged from the Nace program, which has been supporting entrepreneurs from the outset of their businesses for more than 12 years and is especially designed to ramp the banking and financial in the first few months of operation. Entrepreneurs will find comprehensive support in managing and enhancing the businesses with collaborative space that allows them to share their experiences, comprehensive advice on products and Financial Services from a specialized executives as well as guidance, talks, workshop and co-working to empower companies working together with our public and private partners.

Thank you for participating in our presentation. If you have any questions, we will be more than glad to answer them.

[Operator]

[Operator Instructions]

Our first question will come from Gabriel Nóbrega from Citibank.

[Gabriel da Nóbrega, analyst]

During the quarter, we saw that you made additional provisions of around CLP 14 billion to adequate your models for the new provisioning of group loans. We also saw there are 2 Chilean banks reporting results last week. And one of them actually lowered its initial estimation for such provisions, while the other one did not. So what I wanted to hear from you is if you believe that there can be a lowering of such initial estimation that you guys have made? And also how much is still left for you to adequate your provision models? And I'll make a second question afterwards.

[José Ibaibarriaga Martínez, executive]

Okay, Gabriel. Thank you very much. We knew that you were going to make -- someone is going to make that question. The change that are made in the norm of provision containing the Chapter B1, despite of -- an initiative of [indiscernible] for providing the certain standardized methodologies for the computation of provision of group evaluation portfolio. This started in December of 2014 with the modification to the calculation of the provision of mortgages portfolio and will continue with the consumer portfolio. Based on this experience, a standard model has always implied a higher level of provisions. However, we analyzed the situation to where the future and the total impact of this regulation. As you well mentioned, as of March, additional provisions that we have made is around 400 billion -- CLP 14,000 billion. And this has been made in anticipation of the regulatory requirement for standard models. It should be noted that a standard model means that all banks will tend to have the same average provision index without recognizing the particularities of each bank with respect to the risk profile of the portfolio clients or product mix.

At Bci, a very large percentage of mortgage loan for general purpose is compared to SMEs. The risk index of this portfolio is closer to that of a mortgage loan than the rest of the commercial loans whether the commercial has a risk being several times higher. Given this mix for Bci, there's a greater gap to reach the standard risk indicator of the industry proposed by the new models in which all generic commercial loans receive the same treatment, particularly affecting general purpose loans. That said, defending final definition of the regulator, we estimate that we will have to make greater provisions between CLP 31,000 billion to CLP 41,000 billion in the rest of the year apart of the CLP 14 billion that we have already made in the first quarter as you mentioned. I don't know if I answered your question, Gabriel.

[Gabriel da Nóbrega, analyst]

Yes. Just a follow-up here. From my understanding, the regulator would have, all the means to already have these provisioning models in effect by the first half of the year. Has this changed? Why are they asking for the whole year? Like, what I want to understand is when will the regulator be asking you to make all of this for missing CLP 31 billion to CLP 41 billion in provision?

[José Ibaibarriaga Martínez, executive]

When -- your question is, when we are going to have to make the additional CLP 31 million provisions? It is when -- your question is when?

[Gabriel da Nóbrega, analyst]

Yes, it's when you have to start complying with this.

[José Ibaibarriaga Martínez, executive]

In June 2019.

[Gabriel da Nóbrega, analyst]

All right, so June 2019. Why don't you have to make all of these other provisions in the next quarter?

[José Ibaibarriaga Martínez, executive]

Why? We will have to do it. I don't know if I understand your question. This [ new regulation ] starts in June 2019. We have been anticipating this impact. We did something in December last year. We did something in this quarter. So by the end of June when the regulation has to be applied, we will have had made a significant part of the impact during the first semester because we are anticipating it.

[Gabriel da Nóbrega, analyst]

All right. Perfect. I also have another question that's also on asset quality. We see that your NPL ratios keep on deteriorating. I understand that a part of this increase is actually due to incorporation of riskier consumer loan segments. But what caught my attention is that commercial loan's NPLs are still deteriorated. So what I wanted to understand is if these corporates are still [ being ] corporates from previous calls, which we talked about, and if you are expecting to increase provisions for such specific clients?

[José Ibaibarriaga Martínez, executive]

No, as I mentioned, in the commercial loans, there is an increase in the nonperforming loans aligned with the forwardness, economic growth and combined with really few customers who fall in the insolvency and re-entrepreneurship law. What we are seeing is that we believe that we don't have additional risk in this loan portfolio, and we expect that some of those are going to recover next quarter. And the recovery is going to be due to the collaterals that those loan has.

[Operator]

Our next question today will come from Sebastián Gallego of Credicorp Capital.

[Sebastian Gallego, analyst]

I have 3 questions. The first one, if you can provide additional color on how recurrent was the NII coming from Financial Services and overall from Bci's consolidated picture, taking into account that there was a low point of U.S. inflation during the initial quarter of the year. Second question is a follow-up broadly from my colleague. But looking into 2020, how can we expect to see regulatory changes, particularly within the consumer segment, affecting provision expenses in 2020? And finally, my last question is, it caught my attention that net income continues to grow at a lower pace compared to the equity after the capital issuance. So the question is, when do you expect that to be the opposite? And can you please provide a guidance, a new guidance or just to remain with the same guidance on ROE for 2019?

[José Ibaibarriaga Martínez, executive]

Sebastián, I will go for the easiest one to the more complex. The first one, the regulatory consumer model 2020, we have to wait until the authority arrives with something. We don't have any information so far. The net income, as you can see, if you exclude the effect of Credicorp last year, in the same quarter, you will see that we have a positive growth, especially coming from customers. If you compare our margin growth with the main competitors, you're going to see that we are growing while the other ones are decreasing, and the reason for that is basically that we have had an inflation that is lower this quarter versus the first quarter of last year, and the guidelines of the return on equity, we are seeing that it's increasing. It's according to the guidelines that we have given in the past. And we have to take into consideration 2 things, Sebastián. One is that we have just made a capital increase of around $600 million in November, and then you have the increased capital. You don't have the profit, yet. And two, the return on equity, if you compare with the main competitors, we have 30% of our assets with the profitability and the risk of that investment abroad. So the goals and the expectation continue the same, and we are delivering what we have said so far.

[Sebastian Gallego, analyst]

So just to be clear -- okay. Go ahead.

[José Ibaibarriaga Martínez, executive]

No, no. Please, Sebastian.

[Sebastian Gallego, analyst]

No, José, I was just wondering if the same path for you guys is to continue to have a goal of 14.5% ROE for this year.

[José Ibaibarriaga Martínez, executive]

For this year? I'm looking to Andrés if he can give that. I think that the 14.5% is for 2020. All the guidelines that we have done is for 2020, efficiency, guidelines and the 450...

Okay. So Sebastian, the question of net interest margin ratio, and what is the impact of Financial Services, that is your question?

[Sebastian Gallego, analyst]

Yes. I'm just wondering, Mr. José, if how recurring was the NII on Financial Services this quarter, this initial quarter. And I'm just wondering if we should expect NIM at the consolidated level to be even above 3.74%, considering that there was a very low point of U.S. inflation in the first quarter 2019.

[José Ibaibarriaga Martínez, executive]

Here, we have a combined of similar effect. You're completely right that the inflation is lower than the same quarter last year. What is impacting possibly our NIM is that 17% of the margin is coming from Financial Services, and there is an important effect. And we are increasing the sales prices both in the commercial and in the consumer portfolio. We have been applying some profitability plan with a really good segmentation, thanks to the data analytics investment that we have done in the past and that we have taken a different confidence score, but we are having a lot of positive things regarding all the information that we can obtain from the data analytics, that information that we have been providing. So we expect that we will continue this trend, Sebastián, with NIM in the next quarter.

[Operator]

The next question will come from Emilio Acevedo with Santander.

[Emilio Acevedo Caro, analyst]

I would like to know about Chile specifically. Do you think that low-growth loans will be in the lower part through the guidance, considering the growing economy has been downward from this year, particularly in Chile?

[José Ibaibarriaga Martínez, executive]

We're expecting some recovery in the grow rates, especially in the second part of the year. Given that, our estimation is 3.2% growth rate for this year. An additional aspect that we're considering is that we're expecting some improvement in confidence. We are positive in terms of the possibility to be approval of the modernization on tax framework of the government. And then for the next year, we are expecting some -- an additional recovery of the economy with a 3.5% growth rate.

[Emilio Acevedo Caro, analyst]

The loan growth, in general, will not be affected by lower expectation from the market in your opinion?

[José Ibaibarriaga Martínez, executive]

Well, part of that is related to the external scenario, which is clearly affecting our performance, current performance. But we are expecting that the Chinese-U.S. negotiations are going to be positive, and then we are expecting some recovery in place of copper and then some recovery in confidence. Also because we are positive as I mentioned in the possibility of approval in the reforms that the government is implementing or is presenting to the Congress.

[Operator]

[Operator Instructions]

This will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Mr. José Luis Ibaibarriaga for any closing remarks.

[José Ibaibarriaga Martínez, executive]

Thank you very much for participating in the presentation. As always, we are open to receive any specific question with the Investor Relations teams. Thank you very much, and have a good day.

[Operator]

Thank you. This does conclude today's presentation. You may disconnect your line at this time, and have a nice day.