Banco de Credito e Inversiones

SGO:BCI

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, everyone, and welcome to Bci's Third Quarter 2018 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 to differ materially from our current expectations. Furthermore, please refer to the detailed note in the company's presentation disclaimer regarding forward-looking statements.

I will now turn the call over to Andrés Atala, Bci's Head of Investor Relations. Please go ahead, sir.

[Andrés Atala S., executive]

Thank you. Good morning, everyone, and welcome to our third quarter 2018 conference call. My name is Andrés Atala, Head of Investor Relations. And today, I'm joined by José Luis Ibaibarriaga, Bci's CFO; Daniel Kushner, CFO of City National Bank of Florida; and Sergio Lehmann, Corporate Chief Economist.

The figures in this presentation were prepared based on Bci's consolidated financial statement in accordance with the International Financial Reporting Standards methodology and the regulations of Chile's Superintendency of Banks and Financial Institutions.

Now I will 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 economy had sound growth of 4.8% year-on-year in the first half of the year reverting the weakness in prior years. The highlight was the 5.1% increase in investment and fixed capital in the same period reverting some years of decreases. In the next few months, however, the economic dynamics could moderate due to various factors. Firstly, the comparative base will be more demanding because of recovery related to higher expectation that start to be evident at the end of 2017.

Secondly, the economy is gradually shifting to its potential growth rate of 2% on account of structural factors that have slowed the economy. This include the drop in investment up to last year along with lower labor flexibility instilled by the reform implemented in this area some years ago. Maintaining high-growth rate require a simplification of the tax system, providing incentive for investment, particularly for small and medium-sized enterprises and a boost in productivity.

The proposal made by President Piñera for this [ easing ] these lines. Certainly, the international scenario have become more complex, which has led to a drop in the corporate price to which trade of a war -- trade war has escalated, which could generate lower growth -- global growth rates. [ Easy ] trade war is declared more openly, which is part of our scenario, the slowdown of the global economy could be greater, which may hit Chile's growth despite its good economic fundamentals.

Growth in this year will be around 3.8% . In 2019, we expect a slight decrease to 3.4% and 3.5% by 2020, assimilating convergence to potential growth and considering lower global economic growth.

The jump in corporate price and moderation of economic expectation has led to an increase in the exchange rate in Chile. In the next few months, however, we can see a drop in the value of the dollar in line with corporate price that could be higher. Inflation will continue to rise due to the dynamic of the domestic demand is higher and its higher exchange rate. By December, we expect annual inflation to be 2.9%. In 2019, it will be above 3%, which is the target of the Central Bank for some months to close that year at 3%. In line with this trajectory, the Chilean Central Bank has increased the interest rate by 25 basis points in the October meeting, and then we expect high interest rates 3 more times in 2019. This could lead to an estimated neutral value of 4.25% by 2020.

The economic growth forecast for this year contemplate a strong recovery in the mining industry, but this will tend to decelerate in the next few months. The retail sector will be more dynamic compared with previous years based on the recovery of product consumption. After prolonged stagnation in the last 2 years, the manufacturing sector is picking up, particularly related to the food and chemicals industries. This is being driven by the higher growth of demand in Chile and from Latin America to where most of the exports of the sector grow. Services will grow more in line with an economy that is gradually becoming more sophisticated.

On the domestic demand side, investment is the component that drives growth most with a forecast increase of 5% this year and 4.5% next year, while the consumption will grow 4% in 2018 and 3.2% in 2019. A somewhat delay recovery of the labor market explain this more moderate increase in consumption in relation to that in prior economic cycles. The rigidity of the labor market leads to employment increasing less than anticipated. Export could grow by 6.1% this year and less the next year.

The global -- the group's global growth upholds the evolution of [ dip to the big ] component despite global tensions. Regarding risks, we can see a negative balance of economic activity by next year and balance this year. Indeed, the risk of a trade war has increased into tariffs led by -- or owned by the United States and China. The sharp deal exchanges regarding this, between these 2 largest economies of the world, could lead to an escalation of tension with projection in policies, hitting global growth. This could lead to lower copper price prospects and a shrink in growth for the Chilean economy. At the same time, we observed some tension in emerging markets, particularly in those with weak fiscal fundamentals that are the most exposed to global uncertainty. Chile is well prepared to handle disrupts, but there could be -- follow China through financial markets. Regarding Chile, on the positive side, a more dynamic economy is not to be ruled out as more secular policies, particularly modernization of the tax system, made to sound a recovery of expectation and economy boosting higher growth in the next few years, in line with greater potential that this might imply.

Now we'll leave with Mr. José Ibaibarriaga.

[José Ibaibarriaga Martínez, executive]

Thank you, Sergio. Good morning, everyone. I'm José Ibaibarriaga, Bci's CFO, and I'm pleased to be with you again in this conference call.

As we have done in previous quarters, we would like to highlight the following: we have continued to make progress with the Digital Transformation plan, where we have recently launched our new banking mobile app and banking second key Bci Pass. In the domestic market, we have continued to increase our market share. For instance, since September 2017, we had a strong loan growth of 12.7% accompanied by a net income growth of 14.8% in this quarter.

Regarding TotalBank acquisition, we are pleased with the City National Bank and the corporate development team, which had managed to develop our slowness and successful integration process.

We were recognized by the prestigious financial markets in Forbes in the global 2000 ranking as one of the world's best employers.

Finally, regarding our capital increase, Bci Board of Directors in an extraordinary session held virtually on October 18 agreed to sell the preferential option fees in October 31 through November 28 and the price of CLP 41,500 per share.

As of September 2018, Bci had assets of nearly $60 billion and $44 billion in loans, with City National Bank of Florida accounting for 23.4%. Our loan market share is roughly 17%, including City National Bank of Florida and 14% in the domestic market, growing more than 150 basis point in market share compared with September 2017. During the first 3 quarters of this year, Bci had a strong bottom line of $459 million. This include the nonrecurring effect of Credicorp stock sales. The return on average equity was 12.85% during this period. This return on average equity was hit by a negative onetime effect on -- in December of last year of nearly $50 million due to our active position in deferred taxes based on the tax reform in the United States.

Please move on to the next slide. As we have mentioned in past conference calls, one of our most important priorities is to develop a top-of-the-line digital customer experience in order to gain a competitive edge to achieve deeper customer relationships and higher revenue per client.

Regarding our Digital Transformation plan. This quarter, we would like to highlight the following: In terms of disruptive innovation, we have reached more than 550,000 MACH downloads, and we currently have more than 250,000 MACH prepaid cards. We are really enthusiastic about this innovation because this seeks to promote financial inclusion. This is the first app that is 100% free, which solves important needs.

On the one hand, people can withdraw their cash where they want, when they want, but also have access to the functionality of prepaid credit card when using MACH online and abroad.

Lastly, I would like to highlight that MACH runs at the top downloaded Chilean apps with app stores with an excellent rating amongst users.

Please move on to Slide 11. We have recently launched our new banking app that seeks to enhance our customer mobile experience while providing an important increase in security. This new Bci app is more intuitive and faster while providing a better browsing experience. Some highlights of the app are fingerprint access. And in terms of user experience, products are now available in a few clicks, such as investments, consumer loans, credit cards, payments and transfers, among many others. Also, this app is linked to our new banking second key called Bci Pass, which allows our clients to authorize their transactions in their mobile devices without the physical device key of the past. Soon after it releases, more than 20% of retail customers are using the new security apps.

As part of our second pillar, we aim to drive sustainable growth while maintaining prudent risk. In line with this, our latest announcement of the acquisition of Walmart Financial Services is proceeding according to plan where the local antitrust regulator, the Fiscalía Nacional Económica, already made approval last April, and we estimate that we will receive the remaining approval from the local regulator over the next few weeks.

As you can see, operating revenue amounted to $498 million this quarter, which was an increase of 15% compared with the third quarter 2017. These results were positively affected by a better performance in the commercial areas.

In the domestic market, Bci had a strong 12.7% underlying growth, which was well above the industry's 8.7% growth. This was mainly driven by commercial and mortgages loans.

We highlight the contribution of data analytics team to the cross-selling growth and loyalty of our current customers, where we had accelerated the annual increase in the number of products they use in Bci. This is the result of the leverage of our sales processes powered by more than 300 algorithm developed by our data science area, both in retail and wholesale banking. This allows us to generate personalized offer to our client at the moment they need it.

In commercial loans, we grew at a rate of 13.5% year-over-year. As we mentioned in the last call, growth in this segment is a reflection of a better macroeconomic outlook and greater economic dynamism, as Sergio addressed early in his presentation. In this environment, we continued to anticipate our competition due to our sectoral and regional focus.

In the regional segment, we are facing a more competitive scenario. Despite this, we grew slightly below the market, and this is reflected in an 8.4% loan growth in the consumer segment.

Regarding mortgages loans, we grew 13.1%, which has enabled us to increase the share of wallet of our customers.

Please move on to Slide #15. The evolution of the net interest margin has decreased in recent years due to the lower inflation aspects. As we mentioned in the last presentations, our product mix has impacted our net interest margin, especially the growth of mortgages loan by $3.5 billion, which represent 300 basis point since 2015 while we continue to place a special focus on maintaining healthy risk ratio over time.

In terms of funding, a positive factor is that Bci's use of long-term debt is mainly too much in long-term residential mortgages portfolio, which is covered similarly by senior debt and follows are able to reduce reliances on local short-term institutional deposits.

We are also working on the liability side of the balance sheet in order to capture a greater base of noninterest-bearing deposit in order to improve our funding costs. Despite the net interest margin, as part of our strategy, we continue to place a special focus on our cross-selling plan. We want to highlight that Bci's fee income ratio continues to grow this quarter and was 26.55% and in line with our aforementioned strategy.

Let's continue with the provision expenses. In terms of provision in September, the bank made additional provision of around $7.5 million to be used for the implementation of the commercial model for the groups next year, amounting to $22.7 million year-to-date. In addition to that, it has provisioned $18.9 million year-to-date in preparation for the new requirements for the consumer models. In this scenario, our provision expenses increased by 41.4% compared to the same quarter last year. Despite this increase, if we compare the provision expenses this year, the increase on the same period of last year is 19%.

Nonperforming loans were 1.86% this quarter, an increase of 11 basis point year-over-year. This ratio has been affected in the commercial segment by increasing the nonperforming loans due to particular cases that we expect to normalize in the next few months.

Regarding consumers loans, we have seen higher delinquency in recent months, reaching 1.92%.

Lastly, if you can also see the mortgages loan -- performing loans, ratio has maintained a positive trend, falling to 1.18% this quarter.

Please move on to next slide. This quarter, operating expenses were $267 million, growing 14%, excluding City National Bank of Florida. As we anticipate in previous quarters, you can see an increase in our efficiency ratio since 2016. This increase can be explained by a Digital Transformation program and higher expenses related to the recent acquisitions as well as investment in civil security. Although we are working in both sides of the equation, we currently have additional pressure on expenses mainly associated with civil security, Digital Transformation plan, major acquisition and branch mergers. We're implementing several initiatives at the same time and in a deeper way. In consequence, we are willing to keep the actual momentum and accelerate the pace in order to achieve our goals and objectives by boosting revenues. On the revenue side, we aim to deliver a granular value proposition, mainly by data analytics and our customer journeys, growing our client base and increasing cross-selling and share of wallet. So attentional models, adapting their branches current model, boosting omni-channel solutions through its different mobile and web functionalities in order to improve our customer experience as we roll decision processes. Redefined processes front to end aimed at reducing cycle time of a provision through paperless processes, which will allow us to lower processing cost.

Net income amount to $119 million this quarter, which was 14.8% increase compared to previous year's. As usual, we want to highlight the contribution of our subsidiaries, which complement our customer value proposition representing 45% of our consolidated net income.

Please move on to Slide #21. In this slide, you can see the consolidated return on average equity. The return on average equity this quarter was 12.85%, below our 2017 results. This mainly explained by the following factors: return on average equity as of third quarter 2018 does not include the extraordinary profit of March 2017 of CLP 54 billion due to the change in the accounting criteria related to the Credicorp shares that increased our return on average equity to 16.21% in the second quarter 2017.

Return on average equity of second quarter 2018 considers the tax reform in the U.S., which led to a negative effect of $51.2 million in December 2017. This explains also by the increase in expenses associated with the integration of TotalBank.

And finally, in a consolidated basis, operating expenses grew 11.6% year-over-year, mainly to the higher expenses related to technology as well as severance payments as part of the headcount management program. In addition, it should be note that there has also been higher expenses related to the acquisition of TotalBank, Walmart and expenses in civil security.

As you can see in this chart, Slide #22, our Tier 1 ratio decreased to 9.08%, below our commitment of 10%. This is made by organic and inorganic growth in the U.S. and local commercial loans that were more dynamic than previous years due to the recovery of the local economic environment. In order to restore a capital level this year, the preferential option period began on October 31, 2018, and it will last for a period of 30 days until November 29, 2018. Also, during the last 2 weeks of November, we will carry out our roadshow, which include meetings in -- with investors in Chile, Europe and the United States.

It's important to mention that after this capital increase, we estimate that we will close this year with Tier 1 slightly above our internal goal of Tier 1 ratio of 10%, following international practices as well as anticipating new regulations that will apply to the implementation of Basel III. In this matter, and as we have mentioned in our Bci Investor Day held on October with more than 70 local counterparties, our priority indicate that we will not have problem to fulfill the new regulatory requirements.

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

[Daniel Kushner, executive]

Thank you again, José 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 11 years. I am pleased to join José Luis, Andrés, Sergio and the rest of the Bci team on this call.

As I've mentioned before, we are proud of the growth and transformation that has taken place at CNB over the last few years. We believe that we continue to build the premier Florida banking franchise, and we are very pleased with the evolution of the TotalBank acquisition to date.

CNB is uniquely positioned in the Florida market and will continue to grow and outperform peers in one of the most dynamic markets in the U.S.

Please turn to the next slide. We have achieved remarkable success since the acquisition by Bci in 2015, and that success has gained additional momentum, now that we have successfully integrated TotalBank to City National Bank systems during the third quarter.

On this call, we will focus on our third quarter results. But before I cover the details of what has been another strong quarter for City National Bank, I'd like to comment on this most important milestone for CNB.

The agreement to purchase TotalBank from Santander, which is our first acquisition, was signed in November 30. And after having received approval from U.S. and Chilean regulators, we closed the transaction less than 7 months later on June 15. This transaction solidifies our position as the preeminent local bank focused on the South Florida market and demonstrates our ability to acquire and successfully integrate a bank that adds value to the City National Bank franchise. It's important to emphasize that Bci and CNB collaborated to ensure that the appropriate resources were in place to successfully plan and execute the closing of the transaction in the subsequent systems integration. This meticulous approach ensured that our proven ability to generate loans and core deposits in our core markets was not disrupted during the acquisition process, leading to another strong quarter of organic business production.

Our strong and consistent organic growth since we partnered with Bci, supplemented by the recent TotalBank acquisition, positions City National Bank as the third-largest Florida-based bank.

Let me comment briefly on some of the acquisition highlights. Integration has been smooth and according to plans. Clients were successfully retained. TotalBank loan and deposit activity has been business as usual. TotalBank's systems were successfully integrated into CNB systems in July. Our employee base was rightsized at the end of July, and 12 banking centers were closed in October.

As I mentioned, Q3 was another strong quarter for us, and we continue to focus on the drivers that have made us successful. This has consistently produced strong results over the years, and City National bank continues to represent a uniquely positioned growth platform.

Please turn to the next slide. Q3 was another strong quarter, and our performance across these different business lines maintains momentum with the TotalBank acquisition supplementing our strong and proven organic growth capabilities. Allow me to point out some of the financial highlights for the most recent quarter.

Total assets decreased by $149 million in the quarter and increased $4.1 billion year-over-year to $13.95 billion, with a quarterly reduction due to excess cash held in Q2 that was reduced in Q3. Total net loans and leases increased by $56 million in the quarter and $3.7 billion year-over-year to $10 billion, despite the bank selling $215 million of loans in Q3 as part of balance sheet optimization. $1.8 billion of the loan growth was organically generated with the remainder of the result of the TotalBank acquisition.

The investment portfolio, consisting of investment-grade, government-backed securities, represents 19% of assets or $2.7 billion at September 30. The investment portfolio increased by $413 million in the quarter as we successfully scaled in the new investments after liquidating the investment portfolio acquired from TotalBank upon its acquisition in June. Deposits increased by $3.3 billion or 45% compared to September 2017, reaching $10.7 billion. The TotalBank transaction accounted for $1.9 billion of that growth, so a significant amount of the growth over the past year has been generated organically.

For the third quarter, deposits declined by $255 million with brokered deposits accounting for $182 million in reduction. The remaining reduction is due to business-as-usual fluctuations from our client base. DDAs continue to account for a significant amount of the bank's deposit base at 31% of total deposits.

As for our earnings in Q3, year-to-date net income of $78 million increases to $104 million on a normalized basis after adjusting for nonrecurring expenses. Net interest income increased by 27% to $101.5 million quarter-over-quarter due to the TotalBank acquisition.

Intangible amortization expense increased by $6 million quarter-over-quarter due to amortization of TotalBank intangibles, including the additional goodwill created by the transaction.

Tier 1 capital is $1.4 billion. Total risk-based capital ratio of 13.24%, and Tier 1 leverage ratio is 10.47%.

Our asset quality remains strong, and we continue to have the appropriate reserves to successfully navigate any unforeseen economic issues. We stringently abide by our prudent lending guidelines in order to ensure that our strong asset quality position is not compromised: NPLs to total loans of only 45 basis points; NPLs to total capital, only 2.7%; and the allowance in loan mark to NPLs of 140%.

Efficient growth is also one of our primary focuses. Our efficiency ratio is approximately 57%, which is inflated by about 10 percentage points due to $35 million of transaction-related expenses incurred during the first 9 months of 2018. We continue to perform well as indicated by our profitability ratios. Return on average assets was 87 basis points and normalized return on average assets was 1.16% after adjusting for the transaction expenses. Return on average equity was 8.04% and core return on average equity, 10.71% after adjusting for the transaction expenses.

Please turn to the next slide. The majority of our revenue, 78%, is still generated by our loan and lease portfolio, in particular, CRE loans, which comprise 41% of generated revenue. This is followed by commercial loans at 18% and investment income and cash generating 14%.

Fee revenue continues to be the area of opportunity as we move forward. And in July, launched our wealth management unit and continue looking for opportunities in the secondary loan market to generate fee income in the future.

Moving to the balance sheet. Loans comprised 72% of our assets as of September 30. Investments are currently at 19% of total assets. Intangible assets comprised 2% of total assets and account for $259 million of total assets. On the liability side of the balance sheet, deposits are our primary source of funding at 76%. Other borrowings are at 10%, primarily comprised of FHLB funding.

Turning to the composition of our credit portfolio. 72% of our loans have real estate collateral while the commercial and industrial portion represents 20% of the portfolio and substantially secured by 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 18% of the commercial real estate segment. The collateral is diversified as illustrated by the chart. We closely monitor our portfolio in order to ensure it remains properly diversified and adjust concentration limits based on market conditions.

Customer deposits constitute 81% of our funding liabilities, and DDAs continued to be the largest component comprising 33% of customer deposits and 31% of all deposits, including brokered deposits. 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 $37 million in the quarter while our lease portfolio increased $51 million. Our growth was relatively limited since we sold $115 million of residential loans and $100 million of syndicated loans during the quarter. The sales were executed to optimize the loan portfolio following the TotalBank acquisition.

The loan portfolio grew $3.5 billion year-over-year, with CNB strong loan production engine accounting for $1.6 billion of that growth. Deposits declined slightly by $255 million in the quarter, although brokered deposits accounted for $182 million debt reduction. The remaining reduction was due to the timing impact of business-as-usual outflows. Year-over-year, we have grown the deposit portfolio by $3.3 billion, with CNB's organic deposit generating activities accounting for almost $1.5 billion of that growth.

Please turn to the next slide. I'd like to point that the composition of our loan portfolio at September 30 remained similar to what it was in the prior quarter. CRE increased slightly by 2 percentage points to 52% of the portfolio, which includes owner occupied, while C&I decreased from 22% to 20%. The makeup of our deposits remained very similar compared to the second quarter. Noninterest-bearing deposits continue to remain a source of strength of the bank and represent 31% of total deposits.

Please turn to the next slide. City National Bank has grown its loan and deposit base consistently over the past 4 years. The organic loan and deposit growth rates for the first 3 quarters of 2018 are 33% and 26%, respectively, which is in line with growth rates over the past 3 years. Given the strong organic growth in the recent years and the recent acquisition of TotalBank, has led to both loans and deposits more than doubling over the past 3.5 years. We expect growth rates to subside while absolute growth in terms of dollars remains strong.

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. The bank's net income trend is clear and consistent.

The $78 million of net income in the first 9 months is adversely impacted by the TotalBank transaction since the bank incurred about $35 million of transaction-related expenses to date. The bank's normalized net income increases to $104 million once the transaction expenses are adjusted.

Please turn to the next slide. Net income for the quarter was $26 million, inclusive of $26 million of pretax nonrecurring expenses, including amortization of goodwill and other intangibles. Of note, net interest income increased by over $20 million quarter-over-quarter as a result of the TotalBank acquisition.

For the year, the bank's net income is $78 million, which increases to $104 million after adjusting for the $35 million of nonrecurring transaction expenses, which includes $6 million of amortization of goodwill and other intangibles created by the TotalBank transaction.

Please turn to the next slide. Our net income for the first 9 months of the year is $104 million after adjusting for $35 million of nonrecurring expenses, including the amortization of TotalBank, related goodwill and other intangibles. As we capture synergies going forward, we expect the impact of the acquisition to have a significant positive effect on our earnings.

Our normalized ROE -- ROA and ROE are both strong at 1.16% and 10.71%, respectively, and our normalized efficiency ratio is also strong at under 47%.

Please turn to the next slide. On this slide, you can see our reported and normalized ROA, ROE and efficiency ratio, as we just discussed. You can also see the evolution of our net interest margin over the past 2 years. Our margin is stable year-over-year. It is also important to mention that we manage credit risk very effectively as indicated by our outstanding credit quality ratios. We focus our efforts on the best loan transactions from a credit perspective.

Please turn to the next slide. On this slide, you can see that the TotalBank deposit base increased from the contract signing date through closing and from closing to the end of the most recent quarter. We have been executing our plan to touch and welcome the key TotalBank clients to City National Bank, and that plan has proved to be effective.

As a reminder, we closed the TotalBank transaction on June 15 and successfully integrated core and ancillary systems in July. We consolidated 12 duplicitous banking centers in October and now have optimal coverage in our key market at Miami-Dade County.

Please turn to the next slide. 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. We have discussed many of these metrics already, so let's move on to the final slide.

On this slide, you can see that we have built the premier banking franchise in Florida that now ranks as the third-largest bank headquarter in Florida and the only bank in the top 3 exclusively focused on serving the Florida market. We are now also 12th in deposit market share in the state of Florida. Just 2 years ago, our deposit market share was 0.89% or less than half of the 1.98% share we currently have. Furthermore, we have climbed from [ #8 to #12 ] in deposit market share in 2 short years.

Let me conclude by commenting on what we expect for the remainder of the year and our key priorities going forward. Continued focus on regulatory excellence, this is fundamental to our business and also asset quality. We will continue to invest in risk management.

Now that we have closed the transaction, we are well on our way to maximizing the value of the acquisition by optimizing synergies and focusing on client retention activities. Diversification along business and geographic lines will continue to be a key part of our strategy, continuing to generate new business opportunities, such as what we did with leasing. Consolidating our position in Tampa and Orlando are also important to us.

Our value proposition is well received by the overall marketplace as the big bank alternative, and CNB represents a uniquely positioned growth platform due to our current market positioning as it relates to scale and our business model. Our relationship-based value proposition, our ability to continue recruiting the best talent in the marketplace and the strength and continued support of Bci.

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 and 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. Thank you very much.

In terms of our third pillar, we have a strong commitment to enhance leadership and collaboration throughout the organization through a set of best practices with a particular focus on customer centricity and disciplined execution. We want to keep promoting this [ rapid ] innovation and drive a cultural change around our core values to encourage collaboration and distinctive capabilities. Through our change management, we encourage flexibility create in an environment that fosters innovation and offer marginal improvements. We aim to be the first choice employer for talent in the industry and to be one of the best overall places to work and innovate in order to gain a competitive edge in our Digital Transformation plan.

As a consequence of the aforementioned strategy, we have been recognized by Ford Magazine as one of the world's best employer. In addition, we were recognized as one of the best place to innovate award, which recognizes those companies that stand out for developing innovation in and outside their organizations and one of the best companies in Chile for millennials and the best employers for Youth world ranking.

We are proud of the strong reputation and flawless corporate governance track records. As shown in the lower right side of the slide, we have received numerous awards related to our prestigious corporate reputation and sustainable business practice.

Thank you very much for participate in this presentation. If you have any questions, we will be more than happy to answer them.

[Operator]

[Operator Instructions] The first question comes from Tomas Espinoza with MUFG.

[Operator Instructions] Okay. We're going to try again with Tomas Espinoza with MUFG.

[Tomas Espinoza, analyst]

I would like to make your questions, so about the nonperforming loans for the consumer and commercial loans. Basically, I understand -- I would like to understand better why it is increasing in comparison with the other banks. It is like increasing more. And how would you do with the integration of Walmart Financial Service? And in terms, it will require new provisions or it will require new capitalization? And the second question is related to the capitalization. I know you're doing a capital increase right now, but it will require a new capitalization after the incorporation of the Walmart Financial Service?

[José Ibaibarriaga Martínez, executive]

Okay, Tomas. I will try to answer the third one first, capitalization. We do not anticipate that we will need an additional capital increases for the future. The capital increase that we did was assuming both acquisition plus the organic growth that we are having both in Chile and in the U.S. And obviously, we did some assumptions for the future. So we do not anticipate any additional capital increases. Regarding Walmart Financial Services, as we mentioned early in the presentation, we have obtained some of the approvals that we need. We are pending for the [ bids ] authorization. We expect it -- we expect that we will receive it by the end of this year. And as soon as we receive and consolidated the company, we will have to make provisions according to the risk that, the company has. We have made the analysis, and we have -- basically, the biggest one is going to be the day when you buy it. So we don't anticipate major expenses, if that is your question for the next year, except for the normal expenses that, that portfolio has. And regarding the risk of the loan, the nonperforming loans in the consumer segment, in the case of Bci, we have seen a greater nonperforming loans compared to the same period of previous years. According to our analysis, we see that the portfolio is well managed, although there are certain difficulties in the payment behavior on this portfolio. This is mainly explained by the greater dispersion in certain branches where we have activated a plan in conjunction with the commercial team to perform greater management of them. Regarding to your question, the increase of nonperforming loans is not structural in the portfolio since it is explained by a client portfolio affected by the duration in the economic scenario observed last year and that, to date, have not been able to normalize the ability to date. It's important to mention that the analysis of the portfolio continues to generate analysis review and -- but basically, we believe that we still have a very good portfolio in consumer and in commercial loan portfolio. We did have some increase in the commercial area slightly. We do not see any deterioration or significant deterioration at all. And the main thing that you are seeing in the increase of the portfolio is that we are anticipating provisions for the implementation of new regulations in the commercial area now and in the consumer later. So in summary, because it was a long answer, in the risk area, we do not see any significant deterioration at all. We continue to have an excellent result. We believe that it [ tends ] to our data analytic models that we do have. I don't know, Tomas, did that answer your 3 questions?

[Operator]

[Operator Instructions] The next question comes from Neha Agarwala with HSBC.

[Neha Agarwala, analyst]

I wanted to touch upon the loan growth expectation for next year. What do you expect to your loan growth to be in Chile for next year? And for the bank as a whole, including the U.S. subsidy, if you could break it down by geography, that would be very helpful. And my second question is how much provisions do you expect to create because of the change in [ methodology ] next year? I think it's applicable from July next year. So if you have any expectation of how much provisioning you would need to create for that, that would be very helpful. And when are you going to create those provisions?

[José Ibaibarriaga Martínez, executive]

Neha, the loan growth for next year is -- and the justification with the geographic loan portfolio is under the budget process today. Basically, what we see is that we are going to grow according to the growth in GDP multiplied by 2 for inflation and putting a lot of detail in which sector we are going to grow in order to increase our return on equity. But that is the answer. Regarding provision expenses, according to the new models, again, we are making the final analysis. I prefer not to give you final numbers because we are going through that process today. The estimation is that we are going to finish all the calculations by the end of this year with all the mitigating activities that we will put in place in order to decrease as much as we can that impact. So I will be much more prepared to give you an answer for that question the next conference call or you can talk with Andrés Atala, Investor Relations, during this period of time.

[Neha Agarwala, analyst]

If I can follow up. We saw that Santander and Bank of Chile made some provisions this quarter not related to their consumer book as they updated the estimated loss model, which doesn't -- which the supervisor asked you to follow. Did you make any such adjustments for your provisions this quarter? Or was everything recurring a normal business?

[José Ibaibarriaga Martínez, executive]

Yes. If you see our financial statement, we have made some provisions in the commercial area, additional provisions and additional voluntary provisions, too, in order to anticipate that implementation of that instruction. Year-to-date, we have around $19 million in voluntary provisions, plus $22 million in the commercial side.

[Operator]

This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. José Luis Ibaibarriaga for any closing remarks.

[José Ibaibarriaga Martínez, executive]

Well, thank you, everyone, for participating in this conference call. As always, we are open to receive any specific questions with the Investor Relations team, and hope to see you in the next conference call in next quarter. Thank you very much.

[Operator]

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