Banco de Credito e Inversiones

SGO:BCI

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, everyone, and welcome to Bci's Fourth 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 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 Mr. Andrés Atala, Bci's Head of Investor Relations. Please go ahead, sir.

[Andrés Atala S., executive]

Good morning, and welcome to our 2019 year-end conference call. My name is Andrés Atala, Head of Investor Relations. And today, I'm joined by Eugenio Von Chrismar, Bci's CEO; José Luis Ibaibarriaga, Bci's CFO; Jorge Gonzalez, CEO of City National Bank of Florida; Jose Marina, CNB's CFO; and Sergio Lehmann, Corporate Chief Economist.

In this annual conference call, in which both the CEOs and Corporate CFOs of Bci and City National Bank of Florida are participating as well as our Chief Economist, we wanted to take the necessary time to address the different points of interest that we have collect from you, both related to the transformation we are making, the progress of our strategic priorities, the evolution of the economic social scenario as well as the performance of the main financial indicators.

In this regard, we want to inform you in advance, out of respect for your agendas and time availability, that this end-of-the-year conference call may run longer than our typical quarterly calls in order to properly address all points of your interest. At a later date, we will ask for your feedback in order to collect your impressions and make the necessary improvements in order to make this call as informative and efficient as possible. From now, we want to thank you for your interest and time dedicated to Bci.

Now I will leave you with our CEO, Eugenio Von Chrismar, to begin our presentation.

[Eugenio Von Chrismar Carvajal, executive]

Good morning, everyone. Thank you for participating in our annual conference call 2019. As we know, 2019 was a complex year, so it allowed us to confirm the strength of our culture and business.

First of all, I would like to recognize the great commitment of our employees during the last quarter events. As you know, we suffered social unrest that affected our normal operation. Regarding this, I would like to highlight that where we maintain the bank 100% relative to all of our data challenge and quickly and efficiently recovered the operation of our damaged branches to provide needed support to our customers and vendors.

In line with our culture of long-term relationship, we have been in contact with our customers to assess their situation and given them the necessary support at this time according to their needs.

In the case of SMEs, we have made special condition available so that they can resume their activities as soon as possible since we want to help them keep their business going forward. In addition, we launched Renace, a program that provides financial support and advice to those entrepreneurs who need to rejoin -- rejoins the banking system. In total, there are CLP 50 billion that were dedicated to this initiative, which we estimate will be nearly 1,500 customer that we can support over a total of 80,000 clients.

Now I want to address the highlights to our financial results. In terms of loans, we became market leader, reaching almost $46 billion, including our international operation in the U.S.A. Today, we are among the leaders in terms of operational margin where we grew [ '19 62% ] year-on-year. We would like -- particularly like to recognize the excellent result of our success in Chile with a sound performance in Bci insurer brokers, factoring, Bci [ restore broker ] and [ Bci as a manager ].

In the case of City National Bank of Florida, we managed to position ourselves among the 100 largest bank in the U.S.A. based on net income. Following our efficiency plan, we improved our consolidated efficiency by more than 275 basis points, reaching a ratio of 47.78%.

Despite the economic scenarios in Chile, Bci has a consolidated bottom line of $538 million, an increase of nearly 2% year-on-year, which has impacted our net income because of 2 main reason: higher provision resulting from the new regulation of group lending, the one; and the events that occurred in October as well as higher taxes, given the valuation of our investment in City National Bank due to the rise of the dollar. José Luis will address further in this presentation.

Lastly, I would like to address the bank's sound capital position, where Bci presents solid capital ratio and capital base well above regulatory limit. At the same time, this leaves us well prepared to face new challenges of the upcoming Basel III requirements.

In term of our strategy, last year, we updated our purpose on the behaviors of the Bci profile, which we -- with the values are essential to execute the strategy and achieve our main objective there to make a difference. It's a statement that guides all our action in Bci: building a new bank with our clients, employees and society. We know that [ leveraging ] to make the difference is the only way to keep constantly evolving. In this process of [ leveraging, ] we want to highlight the main advance of our first strategic pillars, which is to leverage of top of the line customer experience through of our digital transformation plan. We are working with leading world-class companies like BCG, Google, Accenture, Microsoft, Amazon, and Salesforce, [ everyone is ] all leaders in global technology. With a close relationship, they allow us to think major scale and speed execution and innovation.

Regarding technological architecture, we have made significant progress in term of optimization through the development of application programming interfaces, a microservices architecture based on our new business model. We have also carried out agile practice with robust methodologies.

I also want to address our events related to our customer journey. In Chile, we were the first bank to offer 100% leader mortgage loans, approval for residential lending in alliance with real estate companies. Now 56% of the new mortgage loan, 60% merchant loan and more than 90% of bank posted transaction as through digital channels.

In addition, the new Bci apps is used by 70% of our current account customer. Additionally, data analytics, artificial intelligence, one of the distinctive feature of the new Bci apps, were developed by -- with the name My Finance will allow us -- would allow user to see income and expenses grouped together, the categorization of expenses as well as -- as well the projection of their cash flow. In data analytics, on average, more than 60% of the sale of the main product of the retail segment is directed for the bank's CRM process, reaching more than 70% in the case consumer loans.

Regarding MACH, we have reached more than 2 million downloads and launched new functionalities such as MACH Pay and a physical Visa prepaid card. MACH international transaction now represent around 45% of all Bci international credit card transaction. In addition, a new payment solution for business called MACH Pay began operating in both e-commerce and physical stores.

Also, the bank announced a joint venture with EVO Payments, a leading global provider of payment technology integration and acquired solution. This occurred in a scenario in which government authorities and marketplaces are working for their national payment system to evolve transition-acquired model to one with multiple acquirers will increase capabilities and competition. With these initiatives, along with MACH [indiscernible] Visa and [indiscernible] Pay we want to become the significant players in the [ employer ] and payment solution marketing chain.

In the case of 360 Connect, which is a leading-edge platform for wholesale customer that facilitate their financial management, greatly improving their experience, helping company to save time through a consolidated view of all of their operation. We already enrolled around 12,000 corporate customers.

Last year, we also narrated our Bci Centro Nace, a space for the development of the entrepreneurial ecosystem. There, Bci provides internal support for relevant issues that entrepreneurs need to successfully develop and promote their projects through a strategic alliance with the most relevant partners in the ecosystem, such as Endeavor, Corfo, Start-Up Chile, Universidad Católica de Chile, (sic) [ Pontificia Universidad Católica de Chile ] amongst others. Last year, we had more than 6,000 entrepreneurs visiting the new center.

We are aware that advance that we have made in digital transformation have made greater operational expenses, where today, Bci has higher efficiency ratio but the relevant competition. However, we're convinced that this process will bring us improvement in the margin as well as important improvement in the processes, and therefore, relevant improvement in the operational spend.

Regarding our second pillar -- strategic pillars, drive sustainability growth -- sustainable growth while maintaining prudent risk. Last year was particularly special for us as we successfully integrated Walmart Financial Services in Chile and TotalBank in the Florida market, in line with our strategy on further diversifying our income stream and the risk in both markets.

The acquisition of Walmart Financial Services has allowed us to increase our number of credit card in Chile by approximately 1.5x, boosting our retail loans in the portfolio mix by 200 basis point. Furthermore, it has enabled us to improve our net interest margin and efficiency ratio.

With the acquisition of TotalBank, City National Bank of Florida is now the third largest Florida-based bank. TotalBank were successfully integrated, and we have already captured the estimated synergies, mainly explained by the similar footprint and high -- broad branch overlap. Furthermore, we announced the acquisition of the Executive National Bank in Florida in order to strength our internalization and diversification strategy. In the second part of this presentation, Jorge and José will address City National Bank in a greater analysis.

Finally, we are in process to obtain a banking license in Peru. We have been there for many years where we know the market and the customer. There are 400 Chilean companies that we already have relationships with Bci.

In terms of sustainability, in Bci, we understand that the work we do has a meaning and purpose beyond just the economic figures. We have the strong commitment for the Board -- from the Board of Director and the management of the bank, working with our international adviser in order to meet the highest standard in terms of corporate governance and adoption of best practices that includes all our

[Audio Gap]

This year, I would like to highlight the following. In terms of employee engagement, we are proud to say that the last year, the organization -- the organizational climate study reached an historical 88% ratio. This indicator measure the employee satisfaction, right and recommendation, where Bci is positioned well above the international benchmark and has shown consistent improvement over time.

One of our strategic focal point this year has been financial inclusion and commitment to the community. Example of this is MACH, a free digital platform able to reach people in Chile with note opportunities of being bankerized. In addition, we currently have 76 -- 67 accessible branches and now leading in services, serving customer with disabilities. At the same time, regarding our employees, Bci has been working steadily toward our goal of becoming a leading bank in terms of diversity and inclusion.

With objective of financing in conventional renewable energy projects that contribute to mitigate climate change, Bci issued green bonds for $60 million in 2019 for a period of 10 years. In relation to this, we also have a [ 24 direction ] in our carbon footprint.

Regarding our commitment with suppliers, 99% of their invoice were paid less than several [ years ] -- days, along with an 85% satisfaction rates. This reinforce our commitment to having a long-term relationship with them.

Regarding our third pillar, enhance leadership and collaboration throughout the organization, I would like to highlight that Bci was recently recognized by the organization Great Place to Work as the best company to work for in Chile. This recognition fill us with pride as it align with our strategic pillar of having a culture that place employees and their families at the core of decisions.

In addition, the bank received recognition from MERCO for being the company with the best corporate reputation in Chile for fifth consecutive years. Also, we were recognized as one of the best place to innovate, and we were include in the Dow Jones Sustainability Index Milan and Chile for the third and fifth consecutive year, respectively.

To wrap up, we are aware that 2020 will present many challenges ahead, particularly in the political, macroeconomic and social scenarios. We will place a special focus on our digital transformation and internalization plan as well as having sound risk management process. And as I said early in this presentation, we are aware that the bank has higher expenses due to our digital transformation plan. To do this, we seek to consolidate all innovation and all our strategic alliance in order to enhance our efficiency and consequently, to improve our ROE.

At Bci, in more than 80 year, we have developed a strong culture and experiences complex situation. I am really proud to say that in all this scenario, we have managed to become stronger. And right now, this will not be different.

Now I leave to you with Sergio Lehmann, who will continue with the presentation. Many thanks.

[Sergio Lehmann, executive]

Thank you, Eugenio. The Chilean economy would have grew 1.2% in 2019 with a contraction of 1.9% year-on-year in the fourth quarter due to the negative economic impact of the social unrest during October and November. In December, however, the economy slightly recovered, explained mainly by the nonmining sector. Retail and manufacturing economic sectors suffered large negative impacts in October, but they showed a soft recovery in December. Mining activity didn't have major disruption over the fourth quarter, and service sector improved slightly at the end of 2019, but business and economic confidence reached historical lows.

The Chilean labor market doesn't show major worsening in the last few years. Unemployment rate is 7.4%, with the self-labor employment rising during the last quarter. Private employment is decelerating due to the high level of economic uncertainty but is still in positive ground. Please move to the next slide.

The Chilean peso has been under negative pressure since the middle October. It showed a significant depreciation against the U.S. dollar of around 14% during October and November. Central Bank measures and some recovery in economic figures leaded to a 10% currency appreciation in December, ending 2019 at CLP 750 per dollar. The Chilean Central Bank has built a FX intervention program of $20 billion to mitigate action regulatility until May 2020 through spot and forward operations. The spot market intervention have been temporarily interrupted in January and February. Inflation rate volatility rose in November, but it rapidly diminished in December due to the intervention program. Currently, the volatility is showing an increase due to the global risk aversion related to the economic impact of coronavirus. Please move to the next slide.

Inflation ended 2019 at 3%, showing slight increase during the fourth quarter due to FX pass-through and high seasonal foods prices. Foods prices are rising, but services prices are still showing low inflationary pressures.

Core inflation ended 2019 at 2.5% and medium-term inflation expectation at around 3%, the target of the Central Bank. In the short term, it's expected some transitory inflationary pressures due to the Chilean peso depreciation, but flattish internal demand were dominating prices pressures in the second half of the year. Our estimation is that the CPI could end at 3.1% year-on-year in December.

The Chilean Central Bank provided liquidity measures to normalize the financial market during the social unrest. Monetary policy rate was cut by 25 basis point in October, meaning before the beginning of the protest, and showed no movement in December and January. The MPR ended 2019 at 1.75%, and it will probably cut during the second half of 2020 if inflation expectations are still around 3%.

On the fiscal side, the government spending will increase 9.2% in 2020 to face reconstruction and social agenda. To fund this and to increase fiscal revenues in the middle term, the government introduced a tax reform, used a treasury reserve and a new mix of government debt issuance. The fiscal deficit ended 2019 at 2.7% of GDP and will rise to 4.4% of GDP in 2020. It's expected a gradual decrease from 2021. Please move to the next slide.

In the U.S., the economic activity grew by 2.3% in 2019, above potential growth and with unemployment rate in historical lows. Fourth quarter economic figures shows an annualized growth of 2.1% mainly driven by product consumption and government spending. Investments and net export contracted due to high uncertainty from the U.S.-China trade war. The recent trade agreement between these countries would mitigate the negative risk, but coronavirus have met -- has a short-term negative global economic shock. In Florida, we highlight the unemployment rate that ended at 3%, all-time low.

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

[José Ibaibarriaga Martínez, executive]

Thank you, Sergio. We will now go through -- over Bci's main figures. As of December 2019, Bci was the largest institution in Chile in terms of loans with more than $45 billion. As you can see in the chart, our loans abroad account for 27% of Bci's total portfolio where City National Bank of Florida represent [indiscernible] Bci had a consolidated bottom line of $538 million, an increase of nearly 2% year-over-year despite the less favorable macroeconomics where we had higher provisions, taxes that we address further -- that we will address further in this presentation. I also would like to address the bank's soundness reflected in one of the highest credit rating in the banking sector of emerging markets. Please move on to the next slide.

We will now go through the main figures of our operations in Chile, as Jorge and Jose will explain City National Bank figures. Last year, operating revenues increased 18.1% due to a better performance in the commercial areas, the contribution from our subsidiaries and the positive result of the financial division.

In the domestic market, our loans grew 11.6%, outperforming the 9.9% of the financial system. In the commercial segment, we managed to accelerate our growth after a slower-than-expected first half of the year. This was reflected by a commercial loan growth of 12.3%. I would like to address this 5.7% quarterly-over-quarterly growth on the first quarter 2019, which is mainly explained by 2 effects: one, around 22% of the loans in our commercial local books is in foreign currency, mainly U.S. dollars, due to the appreciation of the dollars against the Chilean pesos. This has a positive effect in the loan growth.

In the corporate segment, we had good opportunities for loan growth with same specific customers in term of risk and profitability according to a risk RORAC analysis. In the consumer segment, we grew 6.9%, including the Financial Services portfolio, in line with the 7.2% of the financial system.

Mortgages loans grew 13% in 2019 in the domestic market. As we have mentioned in past calls, our main objective is to become the principal bank for our clients for all products and services that we provide. This year, we expect to grow between 4.5% to 5.5% in the domestic market in term of total loans, taking into consideration a 1% GDP growth and 3.1% inflation rate, as Sergio discussed early. Please move to next slide.

Financial Services complete its first year of operation as subsidiary of Bci. We want to recognize the members of the management team for their expertise as well as their knowledge of the business as we are proud to state that after this year, all the senior management remained in their position, giving continuity to the operation with sound indicators of satisfaction, both for employees and customers.

We want to reinforce that Bci has always had a long-term outlook on their investments since its foundation. And in that sense, we are convinced that this business is an extremely valuable asset where we have commercial alliance with the biggest retailer in Chile in the world and allowing us to reach different segments of the Chilean population with granular proposal according to their needs.

From a strategic point of view, considering our payment method strategy, it targets a segment that we haven't reached before, combining the businesses with MACH, Bci credit cards and EVO Payments. It has -- it is a remarkable powerful complement to our data strategy where we reach now around 5 million customers combining all this operation.

Despite being affected by the protest on October and November, January data shows that customers have resumed their usual shopping dynamics, using their Líder Bci card with an increase in their amount of visits that we saw in January 2019.

In terms of risk expenses, due to the contingency, we booked higher provisions by nearly $6.5 million in the last 3 months of the year. This amount, that although is relevant for Financial Services, does not impact significantly the bank's figures in the consolidated view.

Despite the complex scenario Chile underwent in the last quarter, we want to address the resilience of the Financial Services team, which has been able to overcome these difficulties by ending 2019 with several remarkable indicators.

Taking a look of the loan growth performance, Financial Services grew 15.7% year-over-year, with our nonperforming loans still remain under 4%. Regarding the efficiency, Financial Services performed with a significant operational savings with -- which drove the ratio to 13.8%.

In term of risk management, we implemented a series of initiatives, such as new collection and origination models, allowing Financial Services to control nonperforming loans. Furthermore, Financial Services entered an important partnership with Servipag, allowing their customers to pay their account statements in more than 1,500 branches available in addition to the Bci branches throughout the countries.

We are excited to be able to fulfill our purpose of making less costly to our clients. An example of this are the important step we are taking in our digital transformation effort through our omnichannel strategy. We are particularly proud of how Financial Services customers have adopted the new app with more than 250,000 downloads within a year, which is around 30% of our customer base. Through this channel, customers can directly pay their account, take an online Super Advance loan and obtain information regarding shopping discounts and promotions.

Lastly, we believe the result of last quarter as a transitory effect rather than permanent, where we are convinced that the potential of Financial Services and the great value of this business.

Please move on to the next slide.

In the domestic market, the net interest margin has positive evolution compared to 2018, increasing by 26 basis points this year. This increase is explained by the growth of our consumer loan book rather than incorporation of Financial Services -- has a positive impact in the bank margins. The spread of new loans in the commercial and consumer segment increased this quarter due to the implementation of our corporate profitability plan, impacting NIM positively.

For 2020, we expect NIM to stay relatively flat, considering the following effect: a new regulation, where banks have to automatically use available checking accounts funds to pay off a client-associated overdraft of around CLP 10 billion; the renegotiation of the last-year mortgages loans after historically low interest rate of around CLP 35 billion. However, these effects should be offset by higher inflation that will benefit margins, particularly in the first half of the year.

Lastly, the fee income increased by 11.6%, where we want to highlight the contribution of Financial Services operation and a cross-selling strategy through our subsidiaries. As for this year, we expect that fees will be growing in line with the loan growth.

Let's continue with the provision expenses. In terms of risk, this year, provision expenses increased by 51.14%. This is primarily due to the first implementation of new regulatory requirement for standard models, group lending. The effect of the new regulation in provision expenses were -- was around $41 million.

Second, provision for around $131 million along 2019 after the incorporation of the Financial Services operation. The depreciation of the Chilean peso also had a significant effect on provisions in the individual portfolio during November of around $8 million, while the consumer and SME portfolio also showed some deterioration. Nonperforming loans were 1.71% in this quarter. Regarding consumer loans, this ratio reached 1.99%, representing a slightly 5 basis point increase. However, when adding the Financial Services portfolio, this figure rises to 2.32%.

Commercial segment nonperforming loans were 1.77%, representing a decrease of 14 basis point year-over-year. The decrease in this ratio mainly explained by recoveries of customers and write-off that has made this year as well as a complementary information adjustment made in last November. This adjustment did not affect our balance sheet in the profit and loss of the bank.

Lastly, you can also see that the mortgages nonperforming loans ratio stayed at lower levels, reaching 1.19%. This year, operational expenses were $1.026 billion, growing 13.65%, excluding City National Bank of Florida. Regarding this increase, it's important to mention that $117 million correspond to the Financial Services operation.

In terms of efficiency, we were able to reduce this ratio by almost 200 basis point, excluding City National Bank of Florida. In addition, it should be note that this year, Bci has managed to keep control operating expenses, growing only 3.1%, excluding Financial Services and City National Bank of Florida. For 2020, we forecast that expenses will grow in line with inflation.

In terms of taxes, we should highlight that the depreciation of the Chilean peso against the dollar has led to a greater valuation of the investments in City National Bank of Florida. When converted to Chilean pesos, in term of taxes, it generate an increase in the value of the investment, which is charged with corporate income taxes.

As you can see on the chart and taking into account the new projected exchange rate for the end of the year 2019 of CLP 750 per dollar and compared with the CLP 695 per dollar as of December 2018, we had a greater value of CLP 55 of the valuation in the dollar-peso parity.

Regarding the sustainability of the effect of income, it is worth noting that for every differences of CLP 10 in the exchange rate, the bank's tax is affected by CLP 3.5 billion. For 2020, and considering an exchange rate of CLP 750 per dollar, we expect that the effective corporate tax rate should be between 20% to 22%.

Local net income amount for $376 million, excluding City National Bank. Despite the 18% growth in operating revenue, net income was mainly affect by the greater tax expenses as a consequence of the depreciation of Chilean peso and higher provision expenses that we recently addressed.

Our return on average asset and return on average equity reached level of 0.97% and 11.2%, respectively, including net income of City National Bank of Florida. The return on equity is explained by -- we currently have nearly 30% of our asset abroad, mainly through the City National Bank of Florida operation, which has a ratio of around 10%; two, as a result of the deep transformation we are undertaking in key initiatives such IT, data analytics, cybersecurity, among other, efficiency has deteriorated as a consequence -- consequently impacted the return on equity. We are convinced that not making this investment now is not an option in order to have a competitive bank in the upcoming years and ensure us the continuity of our business over time. Furthermore, the ratio has decreased after our last capital increase in 2016 and 2018.

As for the investment of City National Bank, which is around $1.5 billion, when the dollar appreciated against the Chilean peso and reaches level of 2019, the investment in U.S. dollar increases in line with equity, as we mentioned in the previous slide.

Also, in 2019, we have a greater effect due to the implementation of the B1 new provision regulation, as we explained in the risk section in this presentation. In the midterm, we estimate to have a return on equity closer to 14%. To achieve this goal, we are implementing the following initiatives. In the case of City National Bank, we estimate that return on equity will go from the current level of 10% to 12% in the midterm. Our efficiency plan considers improvements of efficiency, covering -- converging to 46% level in the midterm. We are also implementing a plan to increase the noninterest-bearing deposit, which should expect to impact our return on equity positively.

The CMF has been publishing a series of regulations that present the transition to bank -- to Basel III, which contemplates full implementation by December 2024. We do not anticipate any problem to accomplish with this regulation. This is important to note that by December 2020, banks must publish risk-weighted assets according to the Basel III standard. At December 2019, Tier 1 ratio reached 9.75%, where we have seen some particular effects mainly explained by the decrease in the value of the accounting hedge that compose the bank's capital, as we explained in the last conference call.

Now I will leave you with Jorge Gonzalez, CEO of City National Bank of Florida, and Jose Marina, the bank's CFO.

[Jorge Gonzalez, executive]

Thank you, José Luis. We appreciate the opportunity to join you on this call to review City National Bank's performance over the last quarter.

Good morning, everyone. My name is Jorge Gonzales. I'm the CEO for City National Bank. José and I are pleased to join Eugenio and the rest of the Bci team on this call.

Bci acquired City National Bank back in 2014 in order to grow and diversify outside of Chile, and we are fortunate to have such a supportive and committed parent company. Their commitment to the U.S. growth and diversification strategy was emphasized in 2018, when we acquired TotalBank, and again, this past September, when we announced the acquisition of Executive National Bank in Miami. We'll discuss more about Executive National Bank later in the presentation.

On January 17, we hosted our first ever City National Bank Investor Day, and we thank those of you that took the time out of your busy schedules to spend the day with us here to learn what we have built at CNB and our strategy going forward. The feedback we received was very positive, and I believe that those that attended learned more about our background, our history, obtained a better understanding of the U.S. banking landscape and economic environment, obtained a better understanding also of the South Florida real estate market and a more granular look at the low risk of our loan portfolio. And hopefully, they also learn more about our digital transformation initiatives that were launched back in 2019.

For those of you that were not able to attend, we encourage you to review Bci's Investor Relations website for the material that was discussed during City National Bank's Investor Day.

2019 was another outstanding year for City National Bank. We continue to generate strong organic loan growth, maintain very strong asset quality, while substantially funding our loan growth through customer deposits. This continued strong organic balance sheet growth, combined with increased fee income and our ability to control expenses, as evidenced by our efficiency ratio as well as the successful TotalBank integration, led us to another strong year of earnings.

With that said, I'm going to turn it over to Jose Marina, our CFO, who is going to further discuss our 2019 results with you as they clearly demonstrate our ability to execute our plan in one of the best banking markets in the United States.

So let's go ahead and turn to the next slide.

[Jose Marina, executive]

Thank you, Jorge, and good morning, everybody. The fourth quarter 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 from the most recent quarter.

Looking at the balance sheet. Loans and leases increased by $258 million in the quarter and by $850 million or 8% year-over-year. Loan growth is moderating, consistent with expectations. We had an outstanding quarter, generating noninterest demand deposits, which is a continuous area of focus for the bank.

For the quarter, we increased DDAs by $97 million, representing an 11% annualized growth rate. For the year, we increased noninterest demand deposits by $293 million year-over-year or 9%. Interest-bearing customer deposits grew by $344 million in the quarter, an annualized growth rate of 18%.

For the year, interest-bearing customer deposits increased by $460 million year-over-year or 6%. We focus our efforts in 2019 on increasing noninterest-bearing deposits, and we're successfully able to grow that valuable deposit base at a higher rate in 2019 than interest-bearing deposits.

For the quarter, customer deposit growth exceeded loan and lease growth by $183 million, so we continue to further strengthen the liquidity position of our balance sheet.

Net income totaled $42 million in the quarter, a 143% increase over the fourth quarter of 2018 and in line with the linked quarter. Our year-to-date net income of $162.5 million represents a 70% improvement year-over-year, while core earnings have improved by 57%. Core earnings does not include, among other items, our $32 million of annual intangible amortization expense, including over $14 million of goodwill amortization per year. This is an important distinction since we are one of the few banks that amortizes goodwill.

Net interest income increased by 14% year-over-year and was effectively flat over the linked quarter despite the challenging rate environment. We have proactively been reducing the cost of our deposits and restructuring our wholesale funding in order to minimize the impact of the challenging rate environment.

Looking at the key rate -- at the key metrics, you will see that capital remains a strength, asset quality is strong and all of our profitability ratios demonstrate favorable trends. Please turn to the next slide.

On this slide, you can see that 77% of our revenue is generated by our loan and lease portfolio, in particular, CRE loans, which comprise 42% of generated revenue. This is followed by commercial loans at 16% and residential loans generating 14% of revenue. Our investment portfolio is also a strong contributor to our revenues, generating 13%.

Fee revenue continues to be an area of opportunity as we move forward. We launched our wealth management units earlier in 2019, and we'll continue looking for opportunities in the secondary loan market to generate fee income in the future.

Moving to the balance sheet. Loans comprised 16% -- 69% of our assets as of December 31. On the liability side of the balance sheet, deposits are our primary source of funding at 75%. Other borrowings are 12% and are primarily comprised of Federal Home Loan Bank funding.

Turning to the composition of our credit portfolio. Over 72% of our loans have real estate collateral, while commercial and industrial portion, representing 19% of the portfolio, is 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 segments.

Customer deposits constitute 82% of our funding liabilities, and DDAs continue to be one of the largest components comprising 31% of customer 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, with a special emphasis on non interest-bearing deposits.

Moving on to the next slide. Our loan and lease portfolio increased by $258 million in the quarter. While our loan lease growth is moderating from a higher rate of growth in prior years, our year-over-year loan and lease growth of $850 million still represents a healthy growth rate of 8%. Our loan growth continues to be driven by organic loan production by all of our lines of business under our consistently prudent credit standards.

Our investment portfolio increased by $575 million quarter-over-quarter as we deployed our excess cash into the loan portfolio and our deposit growth exceeded our loan growth in the quarter by $183 million. The remaining amount of the increase in the investment portfolio was funded by Federal Home Loan Bank advances.

Our primary focus is on generating noninterest-bearing and low-cost deposits in order to fund our loan growth. We have been successful over the past quarter and over the past year in this initiative. Looking at the most recent quarter, our $258 million of loan lease growth was entirely funded by $97 million of noninterest-bearing deposit growth and $344 million of customer interest-bearing deposit growth. Our primary focus continues to be on creating value through ongoing generation of noninterest-bearing deposits and low-cost customer deposits.

Moving on to the next slide. City National Bank has grown its loan portfolio base consistently over the past 4 years. The loan and deposit growth rates over the past are 27% and 29%, 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.

Net income growth has also consistently increased year-over-year, as indicated by the 41% compounded annual growth rate over the past 4 years.

Let's move on to Slide 32. Now Jorge Gonzales will discuss what makes CNB different in the next slide.

[Jorge Gonzalez, executive]

Thank you, Jose. As you've heard, we've had significant success over the last several years, and the truth is we attribute our proven track record of success to the following 6 factors.

First of all, we have great people throughout the organization, and we have worked real hard to become the Employer of Choice to South Florida banking market, and we're always focused on adding key talent to our team. We have a dynamic corporate culture that enable success, and we're focused on retaining our top performers throughout the entire organization.

Second, we're a relationship bank with local decision-making. We have an exceptional client base that has been cultivated over the years through our relationship-based approach.

Third, we have a unique position in the marketplace. On one side, we have a much smaller community bank -- we have a much smaller community banks with more limited resources and products. And on the other side, we have large national and super regional banks that operate in our market, but do not offer the same level of connectivity to the community and bank leadership that City National Bank does. We are the largest South Florida-based bank that is solely focused on the Florida market.

Next, we understand the importance of strong regulatory compliance, and we have a pervasive focus on regulatory excellence every year. It's our #1 priority on an annual basis.

Fifth, we possess a relentless institutional focus on execution. As previously indicated, we believe that we have the best talent in the market and we hold them to a high standard in order to ensure optimal customer experience.

And then finally, we have a diversified business model that results in a diversified loan portfolio. We're not solely a commercial real estate bank, which offers us multiple avenues of pursuing loan growth while also ensuring a prudently diversified loan portfolio.

Our CRE concentration ratio is currently at about 261%, well below the 300% guidance established by the regulators. All of these factors have contributed to our success over the past several years, and we feel confident that will continue to be the foundation for our success moving forward.

Now I'll pass it back to Jose Marina to further discuss our 2019 results.

[Jose Marina, executive]

Thanks, Jorge. On the next slide, you can see that our net income for the fourth quarter totaled $48.4 million, bringing our total for the year to $162.5 million, a 70% increase over the prior year. Our core earnings improved by 58%.

It is important to note that over $8 million of quarterly intangible amortizations, primarily originating from the TotalBank transaction, inclusive of goodwill amortization, are not included in our core earnings. Again, we are one of the few banks in the U.S. that amortize goodwill, which totaled $14 million annually.

You can see that net interest income has increased by 14% year-over-year and increased slightly, linked quarter-over-quarter, despite the challenging rate environment. We have proactively been reducing our deposit costs and have restructured our wholesale funding in order to minimize the adverse impact of macroeconomic conditions on our net interest margin.

Noninterest income increased by nearly $24 million year-over-year and $5.2 million over the linked quarter due to the TotalBank transaction, residential loan sales and gains recognized on the sale of formerly owned bank offices. Noninterest income continues to be an area of focus for the bank.

Loan loss provision expense increased slightly over linked quarter by $4.2 million due to a very slight increase in nonaccruals, but provisions declined by nearly 15% year-over-year due to the continued strong asset quality. Overall, we are pleased with our strong results for the quarter and the year, and look forward to building upon this result in 2020.

Moving on to the next slide. You can see that ROA, ROE and the efficiency ratio all demonstrate improving trends. The normalization of the 2019 ratios is substantially due to the impact of TotalBank intangibles, which is primarily due to the amortization of goodwill. You can see our ROE in 2019 is 9% or just over 10% on a normalized basis.

It is important to mention that our ROE is watered down, due to the significant amounts of excess capital that we are carrying of nearly $300 million. As a very profitable institution that does not pay dividends, our capital accretion is significant on an annual basis, especially when considered that $24 million of after-tax intangible amortization expense that also accretes to Tier 1 capital each year.

Having said this, we are focused on increasing our ROE to 12% in the medium-term through executing the following levers. First, continued strong organic loan and deposit growth in the 10% range, supported by our digital transformation efforts.

Second, within organic growth, relentless focus on growing non-interest-bearing and low-cost deposits and the deployment of best-in-class loan pricing model in order to maximize our net interest margin.

Fourth, executing a disciplined M&A strategy. We closed on the TotalBank transaction in 2018, and we anticipate closing on Executive National Bank this quarter. As the acquirer of choice in South Florida, we will continue to evaluate M&A opportunities as they arise and execute those that we see as a strategic fit for City National Bank. However, we are not entertaining any potential transaction at this time.

And the fourth lever to improving our ROE is increasing fee income in the medium-term. And we're going to do this in a number of ways. First, by executing our recently launched wealth management strategy. Our client base offers a significant opportunity to ramp up our fee income in a relatively short period of time.

Next, by launching an insurance agency that cross-sells a full suite of insurance products to our commercial clients and high net worth individuals. We're aiming to launch this initiative in 2020.

Next, maximizing our treasury management fees. We implemented the best-in-class treasury management platform in 2019, and are currently rolling out standardized pricing that will extract significantly more fee income from this service.

Next, transitioning our residential business to more of a fee-generating business than our portfolio business. We shifted our focus in 2019 to generating loans that can be easily sold in the secondary market, thereby, enhancing our fee income. We have ambition goals -- ambitious goals for 2020 that we are confident can be met.

And finally, by reducing the amount of fee reversals. We recently launched an automated platform that limits the amount of fees that can be reversed on a per banker and per line of business basis. We believe that executing all of these 4 initiatives, while continuing to operate a bank with a low efficiency ratio will produce an ROE of 12% in the medium-term.

Moving on. Our NIM of 2.89% is 16 basis points lower than 2018, as a result of a declining rate environment and its impact on premium amortization in the investment portfolio as well as lower levels of accretion on purchased loans. As previously mentioned, we took several actions in the third quarter to reverse this trend.

Specifically, we are actively reducing our deposit costs, and we restructured a significant portion of our Federal Home Loan Bank advances. As a result, our overall cost of funds is declining, as is our cost of interest-bearing deposits, as we will see on the next slide.

On this slide, you can see that our cost of interest-bearing deposits declined by 15 bps from the second quarter to third quarter. We have proactively and prudently reduced our cost to deposits in order to minimize NIM compression. You can see that our local peers actually increased their interest-bearing deposit cost by 2 basis points over the same period so we have executed a rate reduction in advance of our local competitors.

We have been able to reduce our interest-bearing deposit costs over the last half of the year, while also increasing our interest-bearing deposit balances by $366 million during the 6-month period. Our relationship banking strategy has enabled us to reduce customer deposit rates while simultaneously increasing deposit balances.

Please turn to the next slide. Before we touch on the Executive National Bank acquisition, 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 6 years, and we are focused on improving -- on further improving our results. 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 43 basis points of our total loans. Our normalized ROA and efficiency ratio also demonstrate a continually improving trend.

Moving on to the next slide. We announced the acquisition of Executive National Bank on September 25. Executive National Bank has $467 million in assets as of December 31, and one of the best low-cost deposit portfolios in the nation that has been methodically cultivated over 4 years of serving the community. We are looking forward to welcoming ENB to clients and employees to CNB when the transaction closes, which is expected to take place in the first half of 2020, after all customary regulatory approvals are obtained.

As you can see on this slide, Executive National Bank is an excellent fit for City National Bank. It has a long history of serving the community, as we do. It has a similar relationship-based business model that has fostered a loyal client base. It has a significant community association business and it has a similar culture. We're excited about this acquisition, given the cultural, financial and strategic fit of the organizations.

As you can see on this next slide. We expect to close the transaction in March to early April, and integrate in April after receiving the expected regulatory approvals from U.S. and Chilean regulatory authorities. We are currently executing our integration plan in order to ensure the same level of success that we experienced with TotalBank integration.

Now Jorge Gonzales will make some final remarks.

[Jorge Gonzalez, executive]

Thank you, Jose. Let me conclude by commenting on our key priorities for 2020. First of all, we will have continued focus on regulatory excellence and asset quality. This is fundamental to our business.

We will continue to invest in risk management and corporate governance going forward, and they will continue to be our #1 priorities.

Enhanced focus on sales effectiveness in order to continue to generate low-cost deposit growth that will enhance our NIM and drive fee income. We will also continue to implement and execute our digital transformation plan. We just launched Salesforce throughout the bank in January, after much planning, and we're now working on automating our loan and deposit account opening process through Salesforce-compatible software, among other transformation initiatives.

We're also going to focus on the successful integration of Executive National Bank upon closing, and we're going to make sure that we maximize the transaction value that was anticipated at inception.

Diversification along business and asset classes and geographic lines will continue to be a key part of our strategy. Continuing to generate new business opportunities, such as we did with the leasing and wealth management businesses and executing our HOA strategy. And we also plan to consolidate our positions in both the Tampa and Orlando markets.

The management team remains focused, and we're confident that CNB will continue to produce favorable results for Bci as we transform our teams and our business.

In closing, City National Bank continues to be well positioned to achieve our short- and long-term goals in the Florida market and continue to work at becoming the iconic Florida banking institution.

We thank you all for your time today, and we look forward to the next time we join you on an earnings call. And now, I'm going to turn you back over to the Bci team for final thoughts and a wrap-up.

[José Ibaibarriaga Martínez, executive]

Thank you very much, Jorge and Jose. In summary, as Eugenio, Jorge, Jose mentioned, 2019 was an excellent year in terms of performance and result in Chile and in Florida. Nevertheless, we are truly aware that 2020 is a challenging year in Chile regarding the macroeconomic, political and social scenario.

We believe that Bci has developed a strong and long-term relationship with our customers, employees, suppliers, shareholders and all the community that allow us to feel that we are well prepared to face this complex situation because they -- for the 83 years, Bci has experienced difficult circumstances, and we have been able to be success on all of them.

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

[Operator]

[Operator Instructions] Today's first question comes from Gabriel Nóbrega of Citi.

[Gabriel da Nóbrega, analyst]

I'd like to maybe talk a bit more of the top down. Could you talk about what are the main challenges that you're seeing in 2020 in Chile as well as in Florida? And what opportunities do you expect to tackle through this challenging year? I will make a second question afterwards.

[José Ibaibarriaga Martínez, executive]

I will talk about Chile, and Jorge, you can talk about the City National Bank, please. I think that in Chile, we do have a challenging year. They say some reforms and constitutional election in the near, short-term, this is creating some uncertainty. And that will create a strong focus in what Bci is all about.

Our main challenge is to be close to our customers and helping them as well as to our suppliers, close to our employees in order to deliver them a good place to work and then give a customer experience that customer needs. We will continue with the transformation that the banco -- that the bank is -- in the journey that we have decide because we believe that we want to be here for the next 80 years. So we anticipate that we are going to have difficulties. We have to be very focused in order to succeed, as we have succeed in difficult situations that Bci has had in the past. I think that, that is basically the challenges that we are facing in Chile.

[Jorge Gonzalez, executive]

José, in the United States in South Florida, in particular, I think the only thing that comes to mind, which is probably on everybody's mind, or at least should be, is just the volatility of the rate environment, given what's going on in the overall economy. I think the good news is our balance sheet is fairly well positioned to address the downward pressure in rates relative to our cost of funds, and how the investment portfolio and the loan portfolio is currently being -- it has been positioned.

It helps that the Fed just cut 50 basis points, as most of you probably already saw. Obviously, that will assist us in lowering our cost to deposits fairly quickly. So that will help create some of the tools that we need to manage this rate environment. But outside of that, I don't think there's any unusual risk other than the ones that are headline risk that we read about every day relative to our business here in South Florida.

[Gabriel da Nóbrega, analyst]

All right. It's very clear, José and Jorge...

[José Ibaibarriaga Martínez, executive]

Thank you. José and Gabriel. Just to complement the question because that -- I think that I answer basically the attitude. What we are doing is that we are working heavily with our data analytic strategy, in order to have the information and the value proposition to make the cross-selling that we have been working with our customers.

We have a specific focus in helping our customers, and especially SMEs, to go through this process. And we have a special resources allocated to that issue. We have a specific focus in the risk area, where we anticipate that growing at 1%. Obviously, in the consumer area, it could have some impact, even though we have not seen it yet.

And we are working really hard in being one of the most important players in the payment system. That is why we have a financial system, we have the agreement with EVO Payments, we have MACH and with our credit cards, we believe that we are really well-positioned to be one of the leaders, players in the payment system in Chile. And with that, we hope, at the end of that, we will increase our share of wallet of our category base.

[Gabriel da Nóbrega, analyst]

All right. That's very clear. And actually, my second question, taking a bit of a caveat of something you just said about working on the opportunities, and it's actually on the asset quality. We are already in March. It's already been 3 months since we've started seeing the first demonstration and the protest in Chile. So here, I would just like to ask you guys, what are you seeing in terms of your vintages? And if you believe that the current amount that you have provisioned, which we made in the fourth quarter, if you feel comfortable with this? Or do you believe that you could maybe increase provisions throughout the year?

[José Ibaibarriaga Martínez, executive]

What -- what we saw, Gabriel, is that in October and November, we did saw a complicated situation. Not only because customers were affected, but there's a lot of places where the deal we are able to pay, especially in financial services.

What we have seen in December and then in January, and we are looking in February, is that nonperforming loans are coming to the situation that we [ didn't ] have. Having said that, as -- we are not seeing today a deterioration of our asset quality, even though we recognize -- and we are realistic that if the GDP growth is 1%, unemployment increases, we will see some deterioration. We are not seeing something severe today. Walmart Financial Services is coming to normal levels in January and February. So early to tell, Gabriel. I think that March, April will be a much better month to see what is the asset -- the trend of the asset quality.

[Gabriel da Nóbrega, analyst]

And just a follow-up here. Do you think that you maybe need to do more provisions? Or are you comfortable with the coverage level that you have right now?

[José Ibaibarriaga Martínez, executive]

What do we -- what we do -- Gabriel, Bci operate with based on appetite limit of risk set by our Board of Directors for some risk indicators, including coverage ratio. And based on this data, we can point that out of the coverage remains comfortable over the self-imposed limit. We do not have a specific number in term of coverage, but we hope that we will continue to reach the same levels that we have historically had, according to our credit risk model. And today, we are not seeing any material deterioration that can change that...

[Eugenio Von Chrismar Carvajal, executive]

[ Foreign Language ]

[José Ibaibarriaga Martínez, executive]

And it will depend on the social events in the coming months.

[Eugenio Von Chrismar Carvajal, executive]

Events.

[José Ibaibarriaga Martínez, executive]

Events in the coming months. Days, coming months.

[Eugenio Von Chrismar Carvajal, executive]

Coming days, I hope.

[Operator]

And our next question today comes from Sebastián Gallego at CrediCorp Capital.

[Sebastian Gallego, analyst]

Maybe just a follow-up on the outlook for provisions because you guys provided the guidance on most of the items at the consolidated level, but you didn't mention any guidance or I didn't hear any guidance in terms of cost of credit for this year. Could you provide a guidance on cost of credit at the consolidated level?

Second question is also on asset quality. When we look at NPLs on consumers, we see a major deterioration compared to prior years. I just want to get -- have a better sense on your expectations, more of a medium-term perspective. And finally, on the last question, I would like to ask about the U.S. In the U.S., a couple of things. As Mr. Jorge mentioned, the Fed just cut 50 basis points. This was highly unexpected. How do you -- how does this change your outlook for 2020, if there is anything to change probably? And if you could provide any guidance on the ROE and net income for 2020, particularly.

[Jose Marina, executive]

Regarding the -- thank you for the -- sorry?

[José Ibaibarriaga Martínez, executive]

Yes. Yes, Jose.

[Eugenio Von Chrismar Carvajal, executive]

Go on.

[Jose Marina, executive]

Yes. Yes. Regarding the rate cut that we just learned about during the course of this call. I actually -- that is a very -- I think a good news for banks. LIBOR has already been declining and [ blowbacks ] of assets added price to LIBOR. And we have some liability that is tied to Fed funds. So now we're able to reduce those liabilities in lock in step with the ...

[Jorge Gonzalez, executive]

Cut rate.

[Jose Marina, executive]

Cut in the LIBOR rate. So I think that's a positive thing. And obviously, it also makes the yield curve a lot less inverted. Obviously, it was very much inverted in -- prior to the Fed funds' cut. So I think that is welcome news, what the Fed did today. As far as the overall impact on the NIM. Obviously, the drop in the longer-term rates, medium-term rates that we've seen over the last, really, week is not an ideal curve for the banking environment.

So there will be -- it will have some effect and will not be a material effect. We're in the process now of reforecasting our results. But we're very -- we have a very neutral balance sheet positioning, and we don't expect a significant impact as a result of the rate changes, especially now given that the Fed has cut rates in order to make the yield curve less inverted.

Regarding outlook for 2020. I think the -- as far as ROA, ROE, we continue to expect strong organic loan and deposit growth, which is going to drive income. However, we are investing in our digital transformation in 2020 so we have some incremental expenses that we are experiencing there.

So our ROA and ROE for 2020 are going to be in similar levels, slightly better than 2019. So we will continue to see strong loan and deposit growth, but some of the investments that we're making in transformation, which include the deployment of Salesforce this year, which was just launched in January as well as automating our loan accounts -- loan account procedures and processing new loan requests as well as deposit account opening. That is all being automated.

And we're working on that currently to launch this year. And that will have, obviously, significant benefits for us moving forward. But for this year, we are going to see incremental ROA and ROE improvement.

[José Ibaibarriaga Martínez, executive]

Sebastián, regarding your question. The new scenario in terms of economic activity and unemployment generate greater pressure on both the NPLs and the cost of risk. However, it is important to note, considering the month of November, December and January, nonperforming loans have remained relatively stable.

And regarding our estimation in term of cost of risk. I think that it's worth taking cautionally and waiting for developments in Chile during March and April, which we are monitoring very closely.

In terms of segment, the retail and SME segment may have a greater propensity to be affected. However, we do not expect the material deterioration of the portfolio, unless -- and we will have to see what is the social situations that we will see in March and April.

So as you know, we have a very active and proactive approach with all your investors. So as soon as we see something different, we will let you know. And regarding the consumer loans. We are estimate the consumer according to the market growth that has issued by the Central Bank.

And we are thinking that a 3% to 4% growth into the consumer segment is more or less the growth of the market this year, and we are estimating that we are going to be growing similar to that.

[Sebastian Gallego, analyst]

All right. Just a quick follow-up on the cost of risk. Is there any specific guidance for cost of -- consolidated cost of risk this year for the bank, taking into account all the ongoing situation in Chile?

[José Ibaibarriaga Martínez, executive]

No. We don't have a guidelines in the consolidated cost of risk, Sebastián.

[Eugenio Von Chrismar Carvajal, executive]

In this moment.

[José Ibaibarriaga Martínez, executive]

In this moment.

[Operator]

And our next question comes from Neha Agarwala at HSBC.

[Neha Agarwala, analyst]

Firstly, on the guidance. You provided guidance for some lines like fee income, expenses and taxes. Did you mention about the loan growth? How much loan growth are you expecting on a consolidated level? And the stand CNB should be about 10% organic loan growth?

Second question is on the impact of Basel III. Have you calculated how your ratios will look like under the preliminary guidelines of Basel III? And do you expect a positive, negative or neutral impact from the implementation? Any rough range would be helpful.

And my last question is on your expansion into Peru. I know you've been present in Peru, but now you're applying for a banking license. What's the rationale for the growth in Peru at this point?

[José Ibaibarriaga Martínez, executive]

Thank you, Neha. The -- basically, the Chilean growth is a correlation level of 2x GDP plus inflation. So taking in consideration what Sergio mentioned a couple of minutes ago, with a GDP growth of 1% and inflation of 3%. We are thinking that loan growth for Chile will be around 4.5% to 5%, and we are more or less in that line.

Regarding Basel III. As you are aware, the CMF has been issuing different information that we will have to be fully implemented by December 2024. We have been making different scenario because that has not been finished yet. And our estimation, as we have been talking in the past, we do not see that Bci, neither the big banks are going to have issues with Basel III implementation.

Chile financial system is very strong. And we do not anticipate any -- neither positive or negative impact in Basel III. I think that we are going to be accomplished with the regulation with no major issue.

And regarding Peru, we are just starting. This is a second floor kind of business in order to help more than 400 customers -- Chilean customers that are working there. We have a lot of knowledge. We are just in the earlier stage with ...

[Eugenio Von Chrismar Carvajal, executive]

[ Some investments. ]

[José Ibaibarriaga Martínez, executive]

We believe that we are going to have the license by middle of next year. So we are starting to make the operational draft, and methods and procedures is going to be a situation that we can be talking during the next conference calls each quarter, and we can give you some advance where we are.

But today, we are in a very earlier state of that project. So it's not something that is going to impact neither our balance sheet, neither our profit and loss statement, same as any ratio.

[Operator]

Ladies and gentlemen, this concludes the question-and-answer session. At this time, I'd like to turn the floor back over to Mr. José Luis Ibaibarriaga for any closing remarks.

[José Ibaibarriaga Martínez, executive]

So thank you very much. Thank you very much because we have a longer conference call, but we estimate that having heard from a lot of questions for you. We did want to address all of them.

Thank you, Eugenio, Sergio, Jorge and Jose, for your insight. And as always, we are here for you to answer all your questions. Investor Relation team is always trying to address all your question, and we will be more than happy to receive them.

So thank you very much again. Bye-bye.

[Eugenio Von Chrismar Carvajal, executive]

Thank you.

[Operator]

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