Banco de Credito e Inversiones

SGO:BCI

Earnings Call Transcript 2020-Q4

[Andrés Atala S., executive]

Good morning, and welcome to our 2020 year-end conference call. My name is Andrés Atala, Head of Investor Relations. And today, I'm joined by José Luis Ibaibarriaga, Bci CFO; and Felipe Ruiz, senior economist. We are at Bci's corporate building with all the COVID-19 safety measures. We are also joined remotely by Juan Enrique Pino, Head of Credit Risk of Bci; and from Miami, the City National Bank of Florida team, its CEO, Mr. Jorge Gonzalez; its CFO, Mr. José Marina; and its -- Mr. Hugo Loynaz, the Chief Credit Officer.

To begin our presentation, I will leave you with Mr. Felipe Ruiz, who will go through the Chilean macroeconomic figures. But first of all, I invite you to hear a message that our CEO, Mr. Eugenio Von Chrismar, wanted to share with all of us.

[Eugenio Von Chrismar Carvajal, executive]

Good morning, everyone. I thank you for participating in this conference call. Hoping that you and your families are staying healthy during the pandemic. I would like to start by recognizing the great commitment of the Bci team and acknowledge them for their hard work and strength in which was, for sure, one of the most complex year we had to face as a bank, as a society. I am proud of the way Bci has responded to this complex scenario, where the bank has been 100% operational since the start of the social crisis and the subsequent pandemic.

Today, more than ever, this has become clear that our effort and investment on our digital transformation process has allowed us to respond quickly and simply to our client needs, technologically enabling our employees to work remotely in record time with no interruption in customer service, with exemplary presence and impeccable execution. This scenario has allowed us to refine the strength of how we're doing business and our long-term strategy based on our customer experience, sustainable growth and a strong culture. This culture encourage us to do everything in our power to provide the necessary financial support to our client.

So we're there to make vision, again, activating various special measures by giving them the necessary facilities so that they can face their financial situation. Among several measures to support our customers, we created an exceptional solution for clients that require certain action. All customers who have mortgage loans has the possibility to defer their loan installment for 6 months with 0 interest rates. We believe that this measure was of great value since around 55% of our mortgage customers did it through a simple and digital process on our website.

I want to emphasize that despite this challenging year, we obtained sound results where I would like to address the following. This year, we grew 4% in loans despite the contraction in the economy. This growth was mainly driven by our commitment to deliver state-guaranteed program. In fact, we disbursed $2 billion in FOGAPE loans in Chile and more than $1.9 billion in City National Bank through the PPP and the MSLP programs. In gross operating margin and income generation, we were one of the leader in the system.

We had significant growth in wholesale banking and in sales and trading. In efficiency, we have managed to improve the 58 basis points, ending this year with a ratio of 47.2%. In voluntary provision, we record around $210 million in Chile and U.S.A., which allowed us to raise our coverage ratio to 227%. In the case of City National of Florida, we positioned ourselves among the 100 largest banks in U.S.A. and the third based in Florida, representing around 32% of the consolidated net income.

Bci has a consolidated bottom line of $447 million, which was impacted mainly by the recording of non-recurrent provisions, despite the economic scenario of the current pandemic.

Lastly, I would also like to address the bank's sound capital and liquidity position, well above the regulatory limits. This leaves us well prepared to face the new challenges of the upcoming Basel III requirements.

I also want to mention something that we are passionate about. Our digital transformation has allowed us to leverage digital customer experience to achieve a competitive advantage. Indeed, this was a great year in terms of customer experience, where 86% of our customers are currently using our remote channel and we have positioned Bci app as the new center for customer relation where 44% of our customer are intensive user with a SNIC satisfaction rating of 93%. We recently announced that MACH will become a 100% digital bank in 2021 adding more product and services for our customers.

In addition, I would like to say that MACH already has almost 2.8 million customers. [indiscernible] we want to become significant player in the acquire and payment solution market in Chile combining financial services, MACH, Bci credit cards and the JV with EVO Payments. It is a remarkable and powerful compliment to our data strategy, reaching more than 5 million customers. We are building another [indiscernible] company, offering the best information and granular advice for each customer. We are proud to have the first financial advisor in Chile based on our [indiscernible].

Also, I want to highlight that we already have more than 500 [indiscernible] working with the best partners worldwide, such as BCG, Microsoft and Salesforce. We're continuing our successful international expansion and the [indiscernible] strategy with the acquisition of Executive National Bank and the banking license of Bci Peru.

I would like to share with you our progress in sustainability. We are fully committed to environmentally responsible financing and financial inclusion where we continue to carry out programs and initiatives such as the following. Bci was included in the Dow Jones Sustainability Index in the MILA and the Chile categories for the fourth and the sixth consecutive year, respectively. In addition, we started working on the implementation of the Task Force on Climate-Related Financial Disclosures.

I also would like to highlight that Bci was recognized with the first place in Companies with the Best Reputation for '20 by MERCO. Our employee engagement reached historical 90% rating. As a matter of fact, Bci was ranked in the first place in the Great Place to Work, in Chile. I am also proud to state that Bci was again recognized in various areas like corporate reputation, innovation, business management, financial performance, work environment among others.

In conclusion, we maintain our strong commitment as a company to play a relevant role in the society of which we are part, promoting inclusion and diversity by promoting accessible financial solutions and responsible investment. Our mission is and will be to generate development and growth for people, companies and communities. Our strong culture will continue to guide us on this challenging path with all our stakeholders. Thank you, and keep staying safe.

[Felipe Ruiz Saldivia, executive]

Thank you, Eugenio. Now I will give you some figures for the Chilean economy.

The pandemic crisis in 2020 has driven the most severe world economic recession in almost 100 years, determining enormous social and economic costs, which have not been yet well calibrated. The economic policy uncertainty index was at all-time high during the first half of 2020 but has been lowering in recent months. The second wave of COVID-19 has already hit hard around the world, and it is expected to have lower economic activity in coming months.

In Chile, economic activities has recovered well until November, mainly driven by retail sector and exports. 2020 GDP contracted 6% year-on-year. The Chilean peso has appreciated strongly against the U.S. dollar in fourth quarter '20, and CPI ended at 3%.

Please move on to the next slide. The next slide shows the IMF World GDP's estimates for 2020 and 2021, expected at 4.4% GDP contraction in 2020 and GDP growth above 5% this year, subject to sanitary conditions and fiscal and monetary economic stimulus around the world.

The global economic uncertainty index is still high due to the pandemic crisis. Our vaccination process has started well early in some countries, and we expected to have a steady economic recovery in the second quarter of 2021.

Please move on to the next slide. The third slide is about economic figures in Chile. Economic activity has slowly recovered in the second half driven by the retail sector and exports. Durable goods consumption are rising, and better copper prices are improving their mining activity. The service sector is still lagging due to sanitary conditions.

Unemployment rate is falling, and jobs are recovering but driven by informal jobs. As in December, jobs having recovered 1/3 of total job losses during the pandemic crisis. Fiscal and monetary policies to support income to households and companies have been crucial to economic recovery.

Please move on to the next slide. The following slide shows the evolution of the U.S. dollar to Chilean peso exchange rate since March 2019. The Chilean FX market was under negative pressure until mid-2020, but the exchange rate rapidly dropped in the fourth quarter '20 due to better local and external conditions and financial flows to emerging markets. The Chilean peso has appreciated 10.2% against the U.S. dollar in the last quarter of 2020 and ended at CLP 710 per dollar.

The Central Bank of Chile has announced a program to boost international reserves by buying U.S. dollars for the next 15 months. A better financial position in Chile is key to support the economic recovery. In this context, inflation in Chile ended at 3% for a second year in a row, which reflects the high credibility of monetary policy in a highly uncertain economic scenario.

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

[José Ibaibarriaga Martínez, executive]

Good morning, everyone, and thank you for participating in this call. We hope that you and your family are staying safe and healthy.

As Eugenio mentioned, these first 2 slides show the main highlights of the year in terms of customers and employee support. The former is reflected in our balance sheet structure, with strong growth in government support programs. At the same time, we are making good progress in our digital transformation initiatives.

One of our key priorities has been risk management, as you will see later in this presentation that has had significant effect on our financial results. As you can see in this snapshot of the bank, we ended the year once again as leader in terms of consolidated loans with over $50 billion. We have successfully diversified our operations by adding new lines of business and also by expanding geographically where City National Bank of Florida plus a branch in Miami currently accounts for almost 28% of the bank's total portfolio.

Let's go through the main figures for our operations. In a particularly challenging year, we recorded a positive gross margin thanks to revenue growth of 5.28% year-on-year. As we have mentioned throughout the year, this was mainly driven by higher volume of commercial loans, particularly associated with the state-guaranteed programs together with an outstanding performance by the finance division. The positive operating income combined with a solid cost management where expenses rose 4.01% year-on-year. This allows us to lower the efficiency ratio compared to 2019. The bank will continue to focus on cost control strategies.

On the other hand, this year's profits were affected by higher risk expenses where -- which grew 50.05% year-on-year as a result of the pandemic and a proactive approach to recording additional provisions. Nevertheless, such measures will strengthen the bank in 2021 as we now have a coverage ratio above 200%.

Lastly, in terms of taxes, we should highlight that the appreciation of the Chilean peso against the dollar in recent months resulted in a lower valuation of the investment in City National Bank of Florida. When compared to the Chilean peso, the value of the investment decreases, which reduced the basis for calculating the corporate income taxes, and therefore, lower the bank expenses.

Furthermore, when we took a look at the local result in terms of year-on-year challenges, the main lines follow the similar trend as the consolidated results, as we can see in this slide.

Now let's turn to Bci local results. Bci portfolio amounted to $37.8 billion in the fourth quarter of 2020, increasing 3.5% year-on-year. This growth was mainly driven by the commercial and mortgages portfolios. In the former, FOGAPE loans add over $2 billion, while the latter kept up the growth momentum increasing 12% year-on-year.

Excluding Financial Service and City National Bank, Bci's consumer loans decreased 14% year-on-year, reflecting macroeconomic condition. As Felipe discussed earlier, the figure is still high even though the unemployment rate has been dropping. We believe that the government initiative implemented throughout the year to support the household plus the withdrawal of pension funds twice this year both acted as substitute for greater liquidity. Going forward, we expect consumer loans to reverse this trend in line with economic expectations for this year and the opening of the economy where we expect to see growth in the mid-single digit.

In the domestic market, the net interest margin decreased by 44 basis points, mainly due to the effect of higher growth in financial loans group segment, with lower spreads, such as the FOGAPE COVID program, which has a maximum rate of the monetary policy rate plus 3%. This was magnified by the slowdown in the consumer segment, which has higher spreads.

On the other hand, net fees decreased 10% year-on-year. This significant decrease is mainly explained by a decline in fee income as a result of the economic slowdown after the COVID-19 outbreak. We also report lower-than-expected fee in the retail business.

Now I am going to pass you over to Juan Enrique Pino, who is going to discuss our asset quality and loan portfolio composition.

[Juan Enrique Visinteiner, executive]

[Audio Gap]

All different segments. Even though this was initially in the previous quarter, a result of most of the measures taken by the bank to defer payments and to provide restructures, including grace periods. Most of those accommodations have already expired, and we have entered into the last months of the year in which the first payments out of those deferrals and restructures with grace periods have started to become due. And as you can see in the green bars, that shows a percentage of the exposures that were granted those accommodations that have already started to enter into a regular payment schedule. So we can see that we are almost at 100% in most portfolios back on track. And that is showing that there's a willingness and there's an evidence of payments by most of the portfolios that were given accommodations.

You can see in the bottom right section that we provided 41% of accommodations to SMEs. 41% of the customers were given some sort of accommodations, 18% of consumer exposures and 55% of mortgage loans as Eugenio and José Luis just mentioned. So it was really critical to see how those portfolios are going to start performing as those grace periods started to expire. And we can see that performance has come back entirely on track. That has been in a great portion, thanks not only to the accommodations granted by the bank, but also by the different measures taken by the government with the FOGAPE COVID program to SMEs, by the labor protection programs for consumers and so on. So we're glad to see that the performance has been remarkably good.

Let's go to the next slide, please. So this is another way of looking at what we were -- talking before. Before, we were talking about the trend in performing and exposure, meaning by performing the most pure definition of performance, which is all loans that are totally current, and this shows the nonperforming loan trend, which is loans that are 90 days past due or more. And as you can see, after most of the portfolios have come back to payment schedule, closing 2020, we're seeing even better ratios than in regular years. So again, this is a result of a combined effect of support from the government and support from the bank. And we're hoping that this performance is going to remain. We wouldn't be surprised if this performance that is even better than in a normal year, it starts trending to what could be a normal year, but it's a very good view that November and December, which were the months in which most of those accommodations already expired, the performance from customers has been remarkably good.

Let's go to the next one. So this shows Financial Services division. This is approximately a $1 billion business in -- that is new to us. It was bought from Walmart about 2 years ago. You can see that the portfolio size has decreased 11% year-on-year. That's a trend that we're seeing in all consumer loans, in the banking system in general and Chile and that's basically a result of lower demand, and to some extent, a more selective approach from the bank in granting loans to this customer segment. And you can also see on the bottom side of the chart the NPL ratio or the nonperforming loans ratio for 90 days past due, which picked at a level around midyear, and it's already back on track and at levels that are really relatively similar to a normal year.

Let's go to the next one. And as Eugenio was mentioning and José Luis at the very beginning, despite the fact that we're seeing a normality in the behavior of customers, we have built in a very disciplined manner over the months for 2020 significant additional reserves both in Chile and in South Florida. Those account to [ $2.009 billion ]. You can see that how those voluntary provisions have been built months over months. So that puts us in a pretty comfortable position in order to face unforeseen events that may continue to affect our portfolios such as more delayed recovery or eventually the absence of government support measures going forward, which are expected to coincide with a recovery in the economy. So we believe we have a pretty interesting stock of voluntary reserves in order to face those unforeseen events.

José Luis, back to you.

[José Ibaibarriaga Martínez, executive]

Okay. Thank you, Juan Enrique. Let's go to the next slide, please. For what has been a challenging year and one of the bank's key priorities was to keep expenses under control. And this year, operating expenses decreased from 3%, excluding City National Bank of Florida. Of this total, $117 million correspond to Financial Services division. In terms of efficiency, we're able to reduce this ratio by almost 80 basis points, excluding City National Bank figures. Going forward, we will have to face a number of key challenges. Taking that in account, we have defined 6 strategic focuses that will help us to achieve our goal. The first one is customer experience and digitalization, giving our customers the best experience with a focus on digital channels. The second one is sustainable growth. Three, factoring the digital transformation value, focusing in value flows and commercial efforts on key pockets of opportunities; four, freeze the cost base line, boosting our corporate plan to allow us to optimize, automate and digitalize service models and processes; five, risk management; and six, maximize the profitability of capital. Efficiently allocate capital and maximize its profitability to coverage to the target.

Now I will leave you with Jorge Gonzalez, City National Bank's CEO; and José Marina, City National Bank's CFO; and Hugo Loynaz, the bank's Chief Trade Officer at City National Bank.

[Jorge Gonzalez, executive]

José Luis, thank you for the opportunity to join you on this quarterly earnings call to review City National Bank's performance over the past year. Good morning, everyone. My name is Jorge Gonzalez, and I'm the CEO for City National Bank. José, Hugo and I are really pleased to join the Bci team on this call this morning.

Yes, 2020 has been a unique year, as everybody knows. Except for our banking centers, we operated the bank entirely remotely since March. And started rotating our workforce though the office in October. With everybody working from home, we had to guide the bank through challenging economic times, configure the infrastructure to roll out government lending programs, plan for the acquisition and integration of Executive National Bank, all while continuing the digital transformation projects, among many challenges.

I can tell you that we certainly rose to the occasion, and I am honestly very, very proud of all of our accomplishments in 2020. We provided much-needed relief to the communities we serve, and we created a significant amount of long-term value to the organization in the process. We achieved these accomplishments while also reaching our ambitious digital transformation goals, which also included launching Salesforce, nCino and other platforms throughout the course of the year. We also closed the acquisition of Executive National Bank in October. And as we clearly detailed in last quarter, we also successfully completed the systems integration in December.

So let's jump right into it. During today's presentation, we're going to discuss the evolution of the balance sheet this year, including the impact of our participation in 2 very important programs, PPP and MSLP. We will then discuss our results for the year and conclude by discussing our priorities for '21.

When the PPP program was introduced earlier this year, we truly did not know what to expect in terms of volume or our level of participation. We dedicated the necessary resources up front to automate the process as much as possible and truly make it a client-centric experience as we recognize that many of our clients need assistance in a timely matter.

When the program launched, we quickly realized that we had a significant opportunity, not just to protect our balance sheet and asset quality, but also to create goodwill with our clients by securing PPP loans for them in an efficient manner. We also had a significant opportunity to help new clients that were unable to secure PPP loans from our competitive institutions.

As a result, we wound up closing over 9,000 PPP loans, with 2/3 of these loans coming in the way of new client relationships. However, it's important to note, though, that we did not define success by closing the PPP transactions for those new clients. Instead, our definition of success was by truly trying to cross-sell these clients and making new banking relationships for City National Bank and, thereby, enhancing the bank's long-term value.

As you can see, City National Bank's deposit market share in the state of Florida is just about 2%, and we fulfilled nearly 6% of all PPP loans to Florida-based businesses, which is about 3x our fair share. We funded close to $1.9 billion of PPP loans versus our fair share of $632 million based on our Florida deposit market share. As a result, we generated $57 million in PPP fees, a $38 million increase over the $19 million of fees we would have generated had we just performed at our market fair share level.

But again, our definition of success in terms of PPP fees collected, that's not how we define success. The value of our participation for years to come will be derived from the new client-customer relationships that we developed and to cross-sell them on those clients. The results of which you will see in client deposit growth and new treasury management fees generated, and we're going to discuss those shortly.

We are once again focused on assisting our clients in the second round of PPP, which we've launched here recently, and we're equally focused on leveraging this opportunity to attract new client relationships and maximizing the cross-sell of existing clients that we serve through the program.

As you can tell, I am very proud of our PPP accomplishment. And I'm at least proud -- I am probably equally as proud of the effort that we made in the Main Street Lending Program. When the program was introduced, our credit, legal and other teams immediately studied and analyzed the program, and we developed the necessary processes to effectively underwrite and close these loans. We also trained our relationship managers and reached out to clients that we felt can benefit from participating, and we developed a very strong pipeline in the process.

As a result, we funded 20% of the MSLP loans in the entire nation, representing $2 billion or 12% of the dollars funded through the program. As you know, City National Bank retains only 5% of the loan exposure, while the Federal Reserve purchased 95% of the loan. So only $100 million of the $2 billion funded remain on our balance sheet.

The program had a relevant impact on our 2020 earnings since we collected a 1% fee on the full loan amount, representing about $20 million in loan fees collected and 95% or $19 million were realized within net interest income at the time the loans were sold to the Federal Reserve.

However, just like PPP, we did not define success based upon the fees collected. Instead, our objective was to truly cross-sell these relationships, protect our balance sheet and provide new clients with the much-needed funded through the MSLP program.

For new clients that were approved for an MSLP loan, we encouraged a full cross-sell relationship prior to moving forward with the loan. As a result, our participation in both MSLP and PPP is going to enhance the value of City National Bank and the results for years to come.

Now let's discuss the impact of these programs and the impact it had on total assets in our loan portfolio. As you can see, our total assets increased by $2.8 billion or 18% year-over-year, with our loan portfolio contributing $1.6 billion of that growth. We ended the year with $18.6 million of assets with the acquisition of Executive National Bank contributing less than $0.5 billion of that growth.

On the right-hand side, you can see that our loan portfolio increased by $1.6 billion year-over-year, with PPP loans totaling $1.6 billion at year-end. We received $199 million of forgiveness on PPP loans in the fourth quarter, and we will discuss the impact of that forgiveness on our net interest income in a few slides. You will also see that we have nearly 99% forgiveness rates on these loans that have gone through the process at this moment.

The acquisition of Executive National Bank contributed $340 million of the loan growth year-over-year. And again, the Main Street Lending Program had a minimal impact on loan growth since we only retained 5% or $100 million of the $2 billion generated on our balance sheet. You can also see that our total risk-based capital ratio and our Tier 1 leverage ratio remains strong, with a decline in the leverage ratio to 9.89% due to the Executive National Bank acquisition and the asset growth during the course of the year, which are primarily driven by our participation in PPP.

Our participation in PPP and MSLP not only increased our loans, but it even had a more relevant impact on the total number of commercial clients and on our deposit base. As you can see on the left side of the slide, we increased our commercial client count by 6,500 clients, a 28% increase year-over-year. These new clients were cross-sold treasury management services that are going to account for approximately $2.5 million in annual recurring fees.

We even have the more incredible year in terms of deposit growth. We increased our client deposits, excluding broker deposits, by $3.5 billion or 31% year-over-year. The Executive National Bank acquisition only contributed $423 million of that growth. So the organic growth is about $3.1 billion or 27%. Most of the growth was in noninterest income deposit, which increased by $2.1 billion, excluding the $130 million contributed by Executive National Bank. Noninterest DDA is now representing 38% of our client deposit base, an increase on a year-over-year basis, 60%.

This slide clearly demonstrates the impact of our PPP and MSLP cross-sell efforts. We significantly increased our client count, we increased our deposits significantly and with a substantial amount of that increase coming in the way of DDAs. And we created a relevant recurring revenue stream for the bank by cross-selling our treasury management services. Our substantial deposit growth in 2020 provides us with the funding to increase our loan portfolio and expand our margins in years to come and further supporting our communities.

Our substantial increase in deposits enabled us to increase our investment portfolio by 17% year-over-year to over $4.1 billion, which also is enabling a significant reduction in wholesale funding, who also -- which also decreased by $1.1 billion year-over-year. We have let broker deposits roll off as they mature, with only $120 million remaining at year-end. We also unwound $475 million of swaps over FHLB funding in the fourth quarter, leading to the reduction in FHLB advances down to $1.2 billion at year-end. While we had to pay $12 million to unwind the swaps in Q4, the unwind will reduce interest expenses by approximately $7 million in '21 and $5 million in '22.

Overall, you could see that our weighted average cost of wholesale funding has dropped from 1.39% a year ago to about 0.83% at the end of 2020 after removing the unwound -- the swaps that we were unwound. You can also see that our loan deposit ratio has decreased significantly by 10 percentage points year-over-year to 82%, while the wholesale funding ratio has also dropped from 15% to [ 7.11% ] over year-over-year.

Our PPP and MSLP cross-sell efforts have substantially changed our liquidity position in a very sustainable manner.

So now I'm going to turn it over to Hugo Loynaz, our Chief Credit Officer, who is going to review our asset quality. Hugo?

[Hugo Loynaz, executive]

Thanks, Jorge, and good morning. On this slide, you can see that our loan deferments have declined from nearly $3 billion to -- in May to 900 -- $290 million at year-end, which is a 90% reduction. As you can see on the bottom left of the slide, nearly half of the deferments are under residential mortgages, with another 29% in the hotel and CRE sector. So these 2 buckets account for over 3/4 of our minimal year-end deferrals, substantial drop in deferrals. It's also important to note that the weighted average LTV or the real estate secured loans on deferral is a very conservative 57%.

All coverage or allowance, excluding PPP loans, has more than doubled year-over-year from 60 basis points a year ago to 1.47% at the end of 2020. That increase in coverage was driven by our $101.6 million provisions that we proactively recorded in 2020, which is more than 6x the amount of provisions recorded in 2019. Our NPLs have increased very modestly from $47 million a year ago to $83 million at year-end, this despite all of the challenges for 2020 and terrific numbers. Overall, the deferment trend is strong. The remaining deferments are well secured, and we have proactively provisioned during the course of the year.

On that note, José Marina, our Chief Financial Officer, will review our 2020 results for you. José?

[José Marina, executive]

Thank you, Hugo, and good morning, everybody.

Focusing on our 2020 results. Our net income for the year totaled $110.4 million, a 32% reduction as compared to the prior year. However, if we look at the core earnings before provision expenses, intangible amortization expense, which does include goodwill amortization, gains on sale of securities and the onetime swap and unwind loss that Jorge alluded to earlier, and the EMV transaction expenses, our core earnings actually increased by $35 million or 13% year-over-year. Our net income for the quarter of $19.9 million is $12.5 million or 38% below the linked quarter, primarily due to the onetime expenses related to the Executive National Bank acquisition and the swap unwind loss, as you can see there.

We recorded $101.6 million and $16.3 million of loan loss provisions in 2020 and 2019, respectively. If we add these provisions back to our net income, net of taxes, you can see that our pre-provision net income increases by $12 million or 7% year-over-year even without the onetime expenses associated with the swap unwind losses or the EMV transaction expenses. Adding those 2 items -- those 2 onetime items back results in a $28 million or 16% increase in pre-provision net income year-over-year.

Our PPP and MSLP participation had a significant impact on net interest income in 2020. As you can see, our net interest income increased to $131.6 million for the fourth quarter, an $18 million increase over the linked quarter, and over $20 million increase over the fourth quarter of 2019. MSLP fees had a significant impact in the fourth quarter, enhancing net interest income by $14.3 million versus nearly $5 million in the third quarter. You can also see the PPP fee accretion increased over the linked quarter by $4.4 million to $11.5 million due to the impacts of forgiveness, which commenced in the fourth quarter.

The dark blue segment of the net interest income bars reflects our core net interest income, excluding PPP and MSLP fee, and you can see an increase of roughly $4 million over the linked quarter and the fourth quarter of 2019. This is due to the increase in our earning assets during 2020. As you can see that our core NIM is slightly declining due to the current rate environment and the shift in earning assets with more investment securities and less non-PPP, MSLP loans. Our overall NIM is increasing, however, and reached 3.06% in the fourth quarter due to the PPP and MSLP fee impact.

On this slide, you can see that we were able to increase our noninterest income by $6.2 million or 9% year-over-year, primarily due to our gains on the sale of loans, nearly doubling from $5.8 million to $11.1 million as a result of our mortgage banking activities. This is a business that we continue to heavily invest in and are looking to grow further in 2021. Our BOLI income also increased by nearly $6 million due to new BOLI put in place in 2019. And a onetime benefit recorded in 2020, of about $3 million.

Not reflected in our 2020 results is a $2.5 million of annual treasury management fees from new customers procured during 2020 from the MSLP and PPP programs. We continue to remain focused on enhancing our noninterest income.

Now I'm going to turn it back to Jorge Gonzales, who will review our top priorities for 2021 and provide closing comments.

[Jorge Gonzalez, executive]

Thank you, José. I'd like to conclude by briefly discussing our top priorities for 2021.

First and foremost, we're focused on the active portfolio management in order to maintain our asset quality and minimize the provisioning needs during this fiscal year. Identifying and executing our cross-sell opportunities is also a very key component of our portfolio management strategy. Deepening client relationships through cross-sell is part of the City National Bank's DNA.

Second, we currently are sitting in an excess liquidity position due to the extraordinary deposit growth we generated in 2020, and we're really focused on identifying opportunity to generate high-quality loans to further enhance our margins.

Third, we're going to continue to invest in technology and our digital transformation initiatives and continue to build upon our recent digital investments that has really enabled us to accomplish many key objectives through the year.

Fourth, we want to continue to be focused on our fee income growth, cross-selling treasury management, wealth management, mortgage banking services will continue to enhance our fee income for years to come.

Next, we really continue to remain focused on deposit growth. Again, we are a relationship bank and will continue to require a depository relationship as we lend money to new and existing clients. We're not going to take our eye off the ball when it comes to true, true quality deposit growth.

Finally, we're focused on delivering an optimal client experience, combining our best-in-class personal service with the best-in-breed technology.

In conclusion, 2020 was a difficult year in many respects, and I'm proud of what City National Bank was able to accomplish. We led the nation in MSLP production, and we did 3x our fair share of PPP loans. We increased our clients by -- client deposits by $3 billion and our noninterest DDA balances by 60%, and we increased our client -- business clients by 6,500 or 28%. These accomplishments not only benefit 2020 earnings in a favorable manner, but more importantly, it will enhance our results in 2021 and years to come.

While 2021 will be a challenging year as the pandemic and the economy continue to have some uncertainty, we are really uniquely positioned to set ourselves up to maximize our results this year.

And with that, I'm going to turn it back over to our Bci team for final thoughts and a wrap-up.

[José Ibaibarriaga Martínez, executive]

Thank you, Jorge, José and Hugo. Thank you very much. We have shared with you our main advances, achievements and awards in 2020. At the same time, this year has taught us many important lessons, such as the value of culture in a time of crisis and the importance of the [ currency ] and consistency between what we say and what we do. It is also be able to challenge and change paradigms to have the courage to think outside the box. However, I would like to mention that we are aware that 2021 will present many challenges ahead, particularly in the political, macroeconomic and social scenario. However, as we usually like to say, a strong culture will allow us to succeed as it has been in the last 84 years of our history.

Now we will go to the question-and-answer section. And thank you very much for participating in this presentation. We will be more than glad to answer any specific questions that you may have.

[Andrés Atala S., executive]

[Operator Instructions]

Okay. First, we have Neha Agarwala from HSBC with the first question. Neha, please go ahead.

[Neha Agarwala, analyst]

Can you hear me?

[Andrés Atala S., executive]

Yes, we can.

[Neha Agarwala, analyst]

Okay. Perfect. Congratulations on the result. My question is more on the reprogramming of the loans. You said that majority of the loans that were in the reprogramming have matured in November and December. How has the performance been? How many of the loans are back to the regular schedule of prepayment? And how many still need more support? If you can give us some idea in terms of percentage of loan portfolio, that will be very helpful for us. Thank you.

[José Ibaibarriaga Martínez, executive]

Juan Enrique, do you want to take that question?

[Juan Enrique Visinteiner, executive]

Sure. Hi, Neha. Yes. Indirectly, you could see in the performing loans slide that we presented at the very beginning, that the level of performing exposure relative to total exposure has gone back to the original levels and even better. So that talks as to the specifics that you're requiring, which is of the exposures that were granted accumulations, how much of that has gone back on track. And I would say it's, in the mortgage loans, is -- there -- the 55% of the exposure that were granted accommodation, they went back absolutely to normal levels. And we're talking here about 97% of performing loans.

In the SMEs, we're talking about a 10% of the customers that received accommodations. We have needed to continue providing some sort of further extensions. And in the consumer loans, it's a very small amount. It's about 5% to 8%. So in general, as you can see, at a portfolio level, in the levels of performing are even better than in 2019. That's, we believe, it's extraordinary. We believe it's exceptional. We don't believe it's sustainable. We should, and we expect that those numbers eventually are going to show some sort of deterioration in the same first quarter or second quarter. But certainly, the performance in the last quarter of the year, almost 100% of those exposures having received accommodations has been way better than what was originally expected. I don't know if that answer your questions.

[Neha Agarwala, analyst]

Yes. Yes, it does. That was very helpful. So just to ensure I got the numbers right. It's 10% of the SME reprogrammed loans, 5% to 8% of consumer, and I think 3% to 5% of mortgages, that's where we need support?

[Juan Enrique Visinteiner, executive]

Correct. And of that 10% of the SME exposure, you may be aware that the government is about to launch a second phase of this FOGAPE supported loans that are going to give additional aid to those most affected customers, basically by extending the guarantee provided to banks, so that banks can extend the tenure to those most affected customers and also provide some additional funds particularly to hotels, restaurants, tourism. So this is not ending in terms of government support. So even for those that have been most affected, there's yet more government support coming in.

[Neha Agarwala, analyst]

Great. Another question in terms of guidance and outlook for 2021. Could you give us some numbers or indication trends as to how your margin or cost of risk efficiency should evolve in 2021? And especially, in terms of cost of risk, I believe what you're saying is that you don't need to make any excess provisions. You should come back to normalized provision in 2021. But does that consider a potential second phase of lockdowns and a second wave or a delay in the reopening of the economy? So any color on the trends for '21 would be very helpful.

[José Ibaibarriaga Martínez, executive]

May I answer, Juan Enrique?

[Juan Enrique Visinteiner, executive]

Yes. Because it was more than just cost of credit. It was also name and expenses.

[José Ibaibarriaga Martínez, executive]

Neha, as you mentioned, the recovery of the economy will depend on how -- what is going to be the behavior of our customers. The expectation is that the country is going to grow a little bit below 5% with an inflation of around 3% since the inflation is taking some pace.

And having said that, unemployment should decrease. And then -- and the vaccination is getting a lot of traction. We received around 4 million vaccine between the last couple of days. So today, our massive vaccination is starting. And the idea is that by the end of June, July, we will have a significant amount of the population with the vaccine in.

If that is the case, and we don't have any unexpected situation with this situation. The economy is going to recover. And the idea is that the consumer loan will grow between 4% to 5%, the commercial loan between 5% to 7%. Mortgages in the range of 8% to 11%.

And in City National Bank, with -- excluding all the programs associated with PPP or MSLP program is going to be around 5% to 7%. So we are expecting a recovery, both in Chile and in U.S. We are not putting additional provision in our budget for this year in Chile. We are putting some provision -- additional provisions to be -- to have a conservative approach in U.S.

Regarding OpEx, as I mentioned, in Chile, we did -- we decreased our expenses last year. The decision is to maintain flat expenses during 2021, that meaning that we are going to decrease in 3% real term the expenses. So we are addressing those points in order to improve our return on equity, as we have mentioned in another conference call that you have asked some questions. I don't know if I answer all your questions.

[Neha Agarwala, analyst]

Yes you did. Just on the expenses. If I can follow-up, what would be the driver of further decline in OpEx? Where do you see room to cut OpEx?

[Juan Enrique Visinteiner, executive]

Basically, the -- yes, yes?

[Neha Agarwala, analyst]

And also some color on NIMS. How do you expect NIMS? Should we expect to see further pressure from the FOGAPE loans? What are the trends for this year?

[José Ibaibarriaga Martínez, executive]

Okay. Regarding expenses, what we are seeing in Chile and U.S. is the payback of the investment that we have made in the past in the digital transformation. We are seeing, as you saw in the presentation, an important migration between channels where customers are moving to the digital channels and the traditional physical channels are getting less importance. And what we are doing in order to achieve that and improve and incentive our customers to make it more and more digital is that we are changing all the journey front to back or end to end. And there, we have a lot of opportunities that we are taking advantage of. So that is the way that we are doing.

And regarding NIM, what we are seeing is that for 2021, we have some impact on FOGAPE, as you said, because those loans are coming with a lower spread. We expect that the consumer loan will grow between 4% to 5%, as I mentioned a couple of minutes ago.

Having said that, in the consumer loan, last year, we decreased 14%. So the average of loans are going to be a little bit lower. And in all the volatility that we did have last year, and the opportunities that we took in the treasury area and sales and trading is not expected and it's not going to repeat.

So the expectation is that we are going to marginally decrease our NIM in Chile. And I don't know if you want to complement what José already said regarding NIM in U.S. I don't know if that is necessary. You tell us and we pass to José the question.

[Neha Agarwala, analyst]

Yes, sure. Would love to hear their views on what they expect for the business in '21.

[José Ibaibarriaga Martínez, executive]

José, can you help us in that, please give us some view?

[José Marina, executive]

I'm sorry. Good morning, Neha, everybody. So regarding NIM, what we're looking at in 2021, we're still going to have an impact from the PPP program. We had, through the end of -- we're expecting approximately 90% forgiveness of all of our $1.85 billion of PPP loans. That's almost about $1.7 billion in total. About $200 billion -- I'm sorry, $200 million of that was received in the fourth quarter of 2020. So we're expecting about $1.5 billion of PPP forgiveness to be processed in 2021. So that's going to have an impact on our NIM, as a result of the fees that will come to the -- as a result of the PPP fees that will remain to be accretive. There's roughly about $33 million of fees that have not been taken into income as of December 31, 2020, and most of that should drop into the bottom line into '21. So the impact will still be relevant.

Obviously, with liquidity that we have, we're focused on deploying that liquidity into quality loans. However, we do expect a shift of some of our earning assets into investment securities during the course of the year as we receive this liquidity from the -- forgiveness process. So that will have a natural compression on NIM since we're going to have less weighting on loans and more weighting on investment securities that are lower yielding.

So overall, I think we're going to -- there's going to be some overall NIM compression as a result of that change in shift in earning assets. However, we're going to have some benefits as a result of the PPP forgiveness as well. Again, about $33 million of PPP fees that have yet to be accretive and most of which will impact our 2021 results.

[Neha Agarwala, analyst]

Very clear. Last thing, in Chile, you mentioned that the use of digital channels has increased a lot, and you're focusing on that. Should we expect rationalization of branch network and headcount in Chile?

[José Ibaibarriaga Martínez, executive]

Again, Neha, what we are thinking for this year and on the ongoing basis, is that, yes, the customers are using more and more the digital channel. Yes, they are moving aggressively and the COVID-19 speed up that process and make a lot of customers that didn't use those digital channels to use it. But we are not expecting a significant decrease in our physical channel. We understand that they have a role to play. We have closed, in the last couple of years, more than 30% of our branches, step by step. So we are not thinking something like that. And we are not thinking a decrease in the number of our employees significantly. Yes, and obviously, it's a natural rotation and this is a natural adaptation to the digital requirements.

But -- and let me say that we feel very proud the way that we treat all our employees. And I don't know if you know, Neha, or not, but we really have a long view in everything that we do. And regarding employees, when the COVID arrived and there's a lot of uncertainty in the market, our President and our CEO guarantee to all of our employees that they are not -- that they'll be in the job until the pandemic was over.

Why we did that because we really believe that in the moment of crisis is when your culture need to appear, and you have to be prudent, you have to act the way that you said that you act. And so if we reduce our employees, it's going to be step by step. And with the culture of Bci, and we are not going to make massive decrease of employees.

[Andrés Atala S., executive]

The next question is from Sebastián Gallego from CrediCorp. So Sebastián, the microphone is yours.

[Sebastian Gallego, analyst]

I have some questions today. The first one, maybe a follow-up on the initial questions on asset quality. Given the opinion that you guys mentioned that probably won't be required to make additional provisions. And the outlook that you presented on customer payment behavior is doing well. At the end of the day, what could be the outlook in terms of cost of risk at the consolidated level and at CNB level? Should we expect pre-COVID levels? Or what kind of trend should we expect assuming relatively calm year?

Second question, actually, something similar to that, but a more specific question. We saw a significant rise on NPL, on mortgage NPL at CNB. If you could elaborate on that? The reason behind that? And probably what's the outlook on that specific segment?

And then another question should be -- I mean, following to the point of net earnings and profitability outlook, if you could provide what are the levels of profitability and net earnings that you're expecting, both at Bci consolidated level and at CNB, particularly in the U.S.?

And maybe the final question, the third question, should be related to all these government support and FOGAPE loans and PPP loans in the U.S. What could be the outlook more in terms of asset quality from a midterm perspective once all those loans and all that government support starts to fade, what are your initial impressions of the outlook that could evolve going forward?

[José Ibaibarriaga Martínez, executive]

Yes. I think you did 4 questions. One is regarding asset quality. Specifically, you want to talk about City National Bank. Nonperforming loans and mortgages at City National. Net earnings is something that I can address. And government support, PPP and future of the asset quality in the U.S.

So if José and Hugo can address the question regarding City National Bank, and then I take the Chile side with Juan Enrique, please.

[José Marina, executive]

Your question on NPLs for City National. The composition of residential has stayed pretty much the same proportionately. We've seen a modest increase from 47 -- approximately 89 at year-end. We don't see that as a dramatic increase, given the level of deferments that we had earlier in the year. As you recall, we were's at $3 billion, that number has significantly gone down. And a lot of our loans are returning back to normal, as you can see.

[Hugo Loynaz, executive]

And I'd also point out that our NPLs actually declined quarter-over-quarter from about $112 million to $83 million. So there's actually a decline in our NPLs by about $30 million during the course of the fourth quarter.

And again, what's left in deferrals remained to be -- has a weighted average LTV of 57%. So they're quite well secured.

And in terms of provision needs, obviously, we recorded over $100 million of provisions in 2020. And there's still a lot of uncertainty out in the market. I would expect our provisioning needs this year to be close to a, let's say normal year or slightly higher, depending on the economic developments.

However, you have to also remember, I think, South Florida, obviously, the whole country has been impacted by COVID. But actually, in the long term, South Florida is going to be -- is benefiting from the impact. We're seeing a significant migration from northeastern states, states like New York and the surrounding area, where every day, we read about companies relocating to South Florida. And there is a migration of northeasterners to Florida based on the healthy economic environment, and the friendly tax state and local tax situation that we have in Florida compared to Northeastern states. So that migration is happening. You can hardly find a house here in Florida. They go on and off the market fairly quickly.

And like I said, every day, you're reading about large companies moving down to states like Florida and obviously, similar situation happening in California with a lot of companies in California moving to Texas, Arizona and other states. So I think Florida is really one of the best markets to be in, in the U.S. and we're just getting stronger as a result of the -- and accelerating some of these trends we're already seeing as a result of migration from the Northeast down to the south here in Florida.

Moving on as far as CNB earnings outlook. Obviously, as I indicated, I think our provisioning needs are going to be much lower this year. And that's going to have a relevant impact on our earnings. However, as I indicated earlier, we are getting a significant amount of cash flow back from our PPP loans. That's going to go into the investment portfolio. That's going to result in some NIM compression. So I think we're going to see, as we generate loans, during this year and into the following years, we're really going to see the benefits of our accomplishments that we had in 2020 as a result of our $3.5 billion of deposit growth that we put on, which is mostly in noninterest DDAs . So we will see that impact in our NIM and in our bottom line, more so, some in '21, but more so in '22 and beyond as those -- as we generate those loans, and reduce our investment portfolio and normalize our loan-to-deposit ratio back to where it was, around 90%. We ended the year around 82% loan-to-deposit ratio. So as that normalizes, our earnings will continue to increase.

[José Ibaibarriaga Martínez, executive]

Juan Enrique, can you address the question of asset quality in Chile? And the programs of the government and FOGAPE too, I think? And then I address the consolidated net income.

[Juan Enrique Visinteiner, executive]

Sure, José Luis. So Sebastián, you asked about portfolio quality. And let's focus on consumers and then on SMEs, which I believe is for everyone is having their attention.

Before the crisis, we had a slightly above 1% of our consumer portfolio with people that have -- in risk structures to people that have lost jobs. That 1% is now slightly above 2.5%. So that means that there's a 150 basis points increase in the structures to people that are in transition to a new job, but that have needed restructures of grace periods in order to remain current.

So that's already represented in the high provisions -- specific provisions for the consumer portfolio and eventually further increases in unemployment rate that could hit that portfolio are already built in the voluntary provisions. Of course, we can never say that what we have is enough with 100% certainty, but we are pretty comfortable that it is.

As to SMEs, what I said before was that nearly 41% of the exposure required some sort of accommodation, new money and restructures. And we -- I believe we put in a note that those customers, in aggregate, today have doubled the debt that they used to have before the crisis, not only due to debt provided by Bci, but by the rest of the system. And that duplication of debt is mainly in the form of those FOGAPE loans initially granted up to 4 years. And that to majority of the extent, they are paying on time. But we, of course, have to recognize that they are under stress because their income and their EBITDA is not double what they used to have, but the debt is. Today, they are paying on time, but with -- but under a stress. So the upcoming extension of tenures and additional flexibilities that the government is going to provide is going to help pretty much those segments.

Anyway, we also believe that, that higher indebtedness is recognized in the specific provisions to this segment and that whatever may deteriorate in the future coming from a delayed recovery in the economy, is protected by the voluntary provisions that we have built, particularly for that segment. So again, we're comfortable with the voluntary provisions. We do not deny that there might be some deterioration going forward. We believe it's under control, and we believe it's very meticulously measured and monitored. But we don't know the future, of course. But we believe we are very well positioned for most of the negative scenarios that you can think of.

[José Ibaibarriaga Martínez, executive]

And regarding the consolidated net income. So again, 2020 was an incredible year if you add the voluntary provisions that we did both in Chile and in the U.S. For this year, we are projecting that we are going to grow the net income around 20%. And it's important to mention that the treasury situation, a good result of 2020 is unlikely to repeat. And all the information that José told us about City National Bank with all the effects that the programs to support our customer has -- you really hear, we are going to continue helping our customers. As Juan Enrique mentioned, it's really important to support them.

The crisis has not gone. We need to help our customer to go through. And we feel pretty comfortable that we have taken the right decisions in the past. We have a bank who is growing healthy last year. We expect to continue in the same trend. We are controlling our costs, as I mentioned, with Neha's question, we believe that we are going to control cost flat. The explanation that Juan Enrique told us about risk and those all. Overall, we believe that we are in a very good shape, and we -- in a consolidated basis, we are expecting to grow around 20% in our net income.

[Andrés Atala S., executive]

Jorge Pérez from Itaú.

[Jorge Pérez Araya, analyst]

My question is related to the provisions. So we have seen that the asset quality has been evolving positively in Chile in the entire system. So you mentioned that the bank made almost more than $200 million in voluntary provision. We expect a deterioration for the first and the second quarter. But there is a possibility that the duration is less than that we expect. So if that happen, it's on the table to make some reversal in provision -- in this voluntary provision? Or do you prefer to maintain a more conservative view of 2 to 5 year? So that's my question.

[José Ibaibarriaga Martínez, executive]

What Juan Enrique told us, it's basically that we create these voluntary provisions in order to anticipate any deterioration that we may have in the future. We are not thinking in reverse that provision with the information that we have today. We want to have a conservative balance sheet. We want to be prepared for the worst scenario possible, and that is why we did it. So the time to reverse the provisions is not there yet. We need to give some time to this pandemic to develop. And then we will see. We believe that is like a saving account that we have there that we will use it if we need it. But in 2021, we are not thinking on reverse it, unless the market or the conditions tell us that we need to do it.

[Andrés Atala S., executive]

We have 2 more questions. The next one is from Daniel Mora from CreditCorp Capital.

[Daniel Mora, analyst]

I have just 1 question. José Luis stated that the estimated commercial loan growth for 2021 will be around 5% to 7%. Is this figure considering the FOGAPE 2.0 program? Or I would like to know what will be the participation of Bci in this program considering that the government already presented all the conditions that will have a higher rate and the resources could be devoted to investment purposes also? We can expect the same participation as in the FOGAPE 1.0, around $2 billion?

[José Ibaibarriaga Martínez, executive]

First, the question regarding if the 5.7 includes the FOGAPE program, the answer is yes. It's an overall. Two, regarding how much and how active we are going to participate in this FOGAPE 2.0, the answer is basically the following, Daniel.

We are just finishing to understand what's this proposal of the government. We are clear that we will have to help our customers because it's our mandate. We have a culture of long-term relationships, and we have to prove it in this period of time. Juan Enrique mentioned a couple of minutes ago that the segment of the [indiscernible] segment, which used the most of these programs have doubled their debt in this period of time. And the revenues are not there yet. So it's very natural that we will help our customers with this program.

The amount of money, honestly, we don't know exactly today. Remember that this was finished 1 week ago. And we are going to have all of our customers that are viable in the long-term in order to go through this crisis. So that is the approach that we are having. We want to be part of the solution of this crisis. And in that sense, we are going to do everything that is in our hands to support our customers with a limit, obviously, there are some customers that are not going to be able to go through.

[Andrés Atala S., executive]

We have another one from Ricardo Miranda. He's from Compass Group.

[Ricardo Miranda, analyst]

I have 3 questions actually. The first one is, what is the expected impact of Basel III in the bank? How will you change the capital ratios? Second question is about implementation of the digital banking for MACH. What do you expect this from the year-end? Or where are you going to announce all the services that this platform will provide? And the third question, basically, if you have any outlook about the impact of a possible regulation on interest charge to monetary debt that was announced here in Chile? So that should be it.

[José Ibaibarriaga Martínez, executive]

First, regarding the regulation, I prefer not to comment because we don't have nothing specific. So whatever I said is not going to be very serious. But in general terms, not specific this regulation, all these kind of regulations like the maximum interest rate that you know what are the impact that it has at the end of the day, you have a lot of disbancarization, which is completely against what Bci, and I think that all the financial system want that you have more and more customers in the formal system.

Regarding Basel III, as you know and everyone knows in the call, all the regulations are there. The authority finished by the end of December, all the different aspects of the regulation, we are starting to implement it. We have 5 years. We went through different scenarios. As you know, capital requirement in the different pillar 1, 2 and 3, we have made a lot of estimation of those are very conservative. The authority, I think, that put a lot of requirements there that are conservative.

Having said that, with the 70% capitalization policies that we do have, With the return on equity that we are projecting, obviously, associated with the net income that we are projecting, we do not see difficulties or the need to capital infusion to comply with Basel III requirements.

And it's important to know, Ricardo, that all the assumptions that we have done are assumptions. And at the end of the day, the regulation -- the CMF has not given us a specific what kind of capital we need for something -- for some type of area or another one. We do know exactly -- in the risk -- the commercial area but in the risk on operational of the market reputation, we are making estimation. So we feel pretty comfortable with the regulation. I think that is a good thing that Basel III is in Chile.

And regarding MACH, as I don't know if you participate in the MACH day or not, we took a very important step, trying to continue increasing all the facilities that MACH has, and we decide to go to be a digital bank. Today, we have more than 2.8 million customers, users, and we are going to deliver solutions during this year, step-by-step. We aim to be full digital. We have taken all the decisions to be very light. We have all our system are in the cloud so everything is marginal, and we have a significant lower cost. So -- and that allowed us to make this bank free to our customers. And if you are going to ask me how we are going to make profitable this business is through some fees and charge to the commerce.

And the other thing that MACH is really help us is because we, in our sustainability program, which is becoming more and more important, giving the possibility to the Chilean customers that are not bancarized to have a bank digital free is something that is really complement our strategic priority in the sustainability process.

[Andrés Atala S., executive]

And the last one is from Florencia Stefani from LarrainVial.

[Florencia Stefani, analyst]

I have 1 question related with the FOGAPE program. And if -- do you think the use of the first part of the FOGAPE program in only 50% of the total amount was something related with the demand for loans? Or something related with their supply?

[José Ibaibarriaga Martínez, executive]

I don't know if I hear -- if I follow you. Your question is that the FOGAPE 1 was...

[Florencia Stefani, analyst]

Yes. Yes. Why the use of the total amount was only 50% of the total resources? Do you think that was something related with the demand or with the supply for loans?

[José Ibaibarriaga Martínez, executive]

I will try to answer your question. First, I want to clarify the question. Your question is, the demand for this program was what it was or the banks put a lot of problems and the offer of the financial system was not enough or no?

[Florencia Stefani, analyst]

Yes.

[José Ibaibarriaga Martínez, executive]

Okay. The answer, Florencia, is the following. As a bank, and I'm talking about the financial system and in particularly ourselves, we have the obligation to save the investors and all the customers that are putting their money in our deposit or checking account or -- so when we went to the FOGAPE program, we went with the aim to support all the customers, obviously, has to be valuable customers.

The program, from our point of view and from the authority point of view, from the ex-Finance Minister, was a success. We put more than $300 billion. We support a significant amount of companies outside. I think that the banks really helps customers. We, as Bci, we have a participation of 21% of market share. Our market share of loans is 14%, so a significant more participation that is normal.

And the reason for that is that we were really prepared with all the investment that we have done in the past in the digital area to do it fast. Just to remember the last instruction was one on Thursday and on Friday, customers were asking for the loan. So -- and you have to have a lot of processes to give this loan with the guarantee of the state.

So the answer, the strict answer is that I think that the financial system and Bci, particularly, really helped a lot and with a lot of conviction to all companies. And the offer of trade was really big. I don't know if I answer your question, Florencia.

[Florencia Stefani, analyst]

Yes. My question is mainly because I am trying to understand how success will be the second part of the FOGAPE program because in the first part, even though it was a success program, the bank at the end lent only 50% of the $24 billion that they could lend. So I try to understand if the FOGAPE Reactiva will be a success as the first part.

[José Ibaibarriaga Martínez, executive]

Florencia. I think that in the first half, I mean, in the first one, we double the debt that the SMEs has with Bci, double the debt. That is the conviction that we did have in order to support our customers. So when you mentioned that 50% of the guarantee of the state was not used, it was -- I'm talking about Bci. We really went far away in supporting our customer. And the information that we do have from the financial system, the rest did the same. Obviously, that we have to go through the risk process and give our customers the amount of money that they could pay. And that was the way it was.

The second program, we will see. I think that it's early to tell. As Juan Enrique mentioned, the companies are already with debt. So we will have to go one by one, making the analysis. But I think that the aim of the financial system and particularly Bci, who, obviously, we know much better, is to help customers to go through this crisis and be part of the solution. We are strongly committed to that scenario.

[Andrés Atala S., executive]

And with that last question, we are finishing our annual conference call for this year, for 2020. So thank you. Thank you, everyone, for your time and your dedication to Bci. We will be, as usual, aware about all your further questions. And remember that the presentation will be on our website immediately. So keep staying safe. And thank you very much for all the host and all the guests that we had in this opportunity.