Banco de Chile

SGO:CHILE

Earnings Call Transcript 2019-Q1

[Operator]

Hello, everyone, and welcome to the Banco de Chile's First Quarter 2019 Financial Results Conference Call. If you need a copy of the press release, it is available on the company's website.

Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Senior Vice President of Institutional Relations; Mr. Pablo Mejia, Head of Investor Relations; Daniel Galarce, Head of Financial Control; and Cecil Diaz, Investor Relations Specialist.

Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed note in the company's press release regarding these forward-looking statements.

I will now turn the call over to Mr. Rodrigo Aravena. You may proceed.

[Rodrigo Aravena, executive]

Good morning, everyone, and thank you for joining us today on our conference call for the first quarter '19 financial results. It's a pleasure for me to share with you our comments regarding the evolution of the Chilean economy and the banking system during the first quarter. After that, Pablo Mejia, our Head of Investor Relations, will review the financial results of Banco de Chile in that period.

Please turn to Slide #3. We have a successful 2018 in which we saw an improved scenario with higher growth rates, better quality of employment and an impressive pickup in private investment. Consequently, Chile achieved the best economic scenario since 2012. Specifically, GDP rose 4% well above the 1.8% observed on average during the previous 4 years. A comparison between Chile and both the global economy and the Latin American growth can be observed in the other left chart. The recovery was largely driven by private investment, which rose 4.7% after falling between 2014 and 2017. It's also worth highlighting the lower contribution from fiscal spending, demonstrating that the activity was fully driven by the private sector.

During the last month, however, we've seen less dynamic growth. The beginning of this year was characterized by big figures with an average expansion of around 1.8% in the first quarter after observing a stable 6% growth in the fourth quarter. In this environment, the annual inflation rate has remained low. It was 2% in March due to the 0.1% quarterly increase in the first quarter, well below the 0.7% posted 1 year ago. Therefore, the Central Bank changed its forward guidance for the monetary policy rate after announcing in the March monetary policy report that the interest rate would be stable for the greater part of the year. Now the interest rate is at 3%. Only 3 months ago, the Central Bank considered lifting the interest rate to 4% this year.

Despite this temporary weakenings, it's worth taking into consideration some factors behind this slowdown. First, the economy was negatively affected by heavy rains in the north of Chile, which reduced the copper production. In fact, mining production fell by 5.8% in the first quarter, reducing the GDP growth by 70 basis points in the period. Since this shock was temporary, the contraction in the mining sector, which represents nearly 15% of GDP, will not last for much longer.

Second, estimates of global GDP have been falling. This was confirmed by the baseline scenario presented by the IMF in its last [ hour ] economic outlook where they upgraded the global GDP estimate to only 3.3% for this year. Since Chile is an open economy, this change will affect our activity.

Finally, the labor market has shown an unusual lag relative to the economic cycle. Despite the higher economic growth posted since the beginning of last year, the employment growth has remained subdued, reducing the dynamism of private consumption. In this environment, we've seen a downward trend in GDP forecast for this year.

In spite of these factors, we're seeing that the first quarter '19 was the bottom of this temporary slowdown. In other words, we expect, in the next quarters, the economy to grow faster, as can be observed in the other [ right ] chart. Basically, our positive view is based on 3 main factors: first, since the contraction in the mining sector was led by temporary climate conditions, it's reasonable to expect a positive contribution from this sector in the coming quarters; second, private investment has been getting stronger, which has been reflect by several indicators, such as the positive trend in capital goods imports, as seen in the bottom left chart and business confidence remaining in the optimistic zone. If these trends continues, we will see positive spillovers in the labor market contributing positively to the employment and wage growth. Lastly, the lower-than-expected inflation rate allows the Central Bank to adopt a more neutral bias, which is equivalent to having a more expansionary monetary policy. All in all, we are confident that the economy will resume its positive momentum as we saw last year.

In the next slide, I present our view for 2019 and 2020. Please move to Slide #4. As we mentioned before, we expect better growth in the period. Specifically, we expect GDP to increase between 3.2% and 3.3% [indiscernible] in the next year, respectively. But greater than the positive rates, the most relevant aspect to consider is a good-quality growth due to the expected dynamism in private investment, as seen in the 2 first charts on this slide.

We don't expect material changes in the nominal side of the economy, as can be observed in the 2 bottom charts. We estimate that CPI will end the year at slightly below the Central Bank target of 3%. Our forecast is 2.7% as a consequence of the persistent [ output gap ] of the economy. However, we acknowledge the existence of another bias in inflationary pressures in the short term as a consequence of the rise in oil prices. We also estimate the inflation to go up to 3% only in 2020.

In this environment, we expect the interest rates to remain unchanged throughout this year. There would be an increase in the interest rate next year only if the economy shows convincing signs of recovery.

Now I would like to go over with some trends observed in the Chilean banking system. Please turn to Slide #6. Loan growth continued strong this quarter with all the growth finally growing near the 10% level during the year. As you can see on the chart on the right, net loan origination slightly slowed down when compared to prior quarters in constant pesos but still maintains a good level of expansion this quarter.

Nevertheless, this quarter was weak in terms of financial results. Net income for the banking industry posted CLP 571 billion, declining 9% when compared to the first quarter last year. The lower-than-expected result was mostly explained by the 0 variation in the UF, which reduced inflation ratings. Additionally, the existence of higher credit risk provisions in operating expenses also affected the overall result. It's important to point out that the reduction in net income would have been even greater if it wasn't for the incorporation of Presto and CMR credit card business in the banking figures.

Even though the quarter was weak in terms of results, there are several factors from a macro point of view, sustaining a positive view for the future. As we mentioned in the previous slide, we expect the economy to increase if economic growth in the next quarters providing additional support for a further expansion in business volumes. Additionally, the potential rise in inflation will contribute to higher revenues. In fact, since the average quarterly inflation will likely be between 0.6% and 0.7% over the next quarters, it's also reasonable to expect a pickup in revenues. In this environment, we will enforce our positive view for the future, especially for our bank, which will be analyzed led by Pablo Mejia in the next slide.

[Pablo Ricci, executive]

Thank you, Rodrigo.

Please flip to Slide #8. Net income before taxes for the first quarter of 2019 reached CLP 136 billion. That was largely explained by the 0% inflation recorded during the period. If we adjust the first quarter of 2019 to the same level of inflation from the first quarter of 2018, we would have recorded a similar result as in the same period last year. To a lesser extent, this flat growth was also due to higher credit risk provisions resulting from loan growth and one-off expense as well as higher operating expenses. Additionally, we also posted lower treasury revenues. This was partially offset by strong customer income growth. In the next slides, we'll go into a deeper review of each of these [ context ].

Please turn to Slide #9. Despite the 0 inflation for the period, we are proud that we were able to maintain operating income flat year-on-year at CLP 445 billion, thanks to our consistent strategy to grow flexibly in the retail and wholesale segments. As you can see on the chart, this growth was driven by solid customer income, which grew 9% year-on-year. The main drivers supporting this growth were increase in loans in the retail segment as well as the rise in demand deposits, both growing almost 9% on average year-on-year. We also saw a strong fee generation, which rose 16% year-on-year, as detailed on the chart on the right. This increase in fees was chiefly due to higher net revenues from transactional products because of higher usage rates, greater cross-selling and a growing customer base due to effective commercial plans that pursues to increase penetration of high-income individuals. We also reached very good growth in mutual fund management fees that were up nearly 10% year-on-year, while insurance brokerage was up 15% year-on-year.

It's also important to mention that we entered into new agreements to boost our ATM networks, [indiscernible] at this time 345 points of service across Chile. As you can see on this -- as you can see, we are seeing an important increase in revenues in financial service.

Noncustomer income dropped 35% year-on-year as a result of the sharp decline in inflation, which negatively impacted the contribution of our structural U.S. GAAP position. If we had the same inflation as the first quarter of 2018 during the first quarter of 2019, operating income for this period would've been CLP 476 billion -- 476 million, sorry, 7% more than the same period last year, reflecting a significant expansion of customer income. Additionally, noncustomer income was further impacted by lower revenues from funding and gapping related to repricing of short-term liabilities, in line with the rise of the overnight rate as well as fewer treasury opportunities that led to less trading revenues.

Please turn to Slide 10. This quarter, total loans grew 9% year-on-year, in line with the improved private investment growth and business confidence levels remaining in the optimistic zone. Retail -- The retail segment continues leading growth, rising almost 11% year-on-year, while wholesale loans grew 6.1% during the same period. This breakdown is consistent with our focus of growing faster, more profitable segments similar to -- during the past quarters, SME loans continued to be the fastest-growing segment, increasing at a rate of 12.9% year-on-year, while loans to individuals were slightly behind, growing 10.2% year-on-year, thanks to the expansion in mortgage loan book origination of 22.4%.

Origination in SME loans grew 15.2% over the same period last year, influenced by a newly approved SME loans model that was introduced in January. In fact, preapproved SME loan origination nearly doubled the level recorded last year, as you can see on the chart on the bottom right. We expect that the SME book will continue being a driver for loan growth in the coming years, especially since this segment in Chile has low penetration.

Consumer loan growth has remained at high levels of nearly 10% year-on-year, thanks to our solid retail commercial strategies, together with our robust preapproved consumer loan model, that recorded a 16% increase in originations over the same period last year, allowing us to continue growing at record levels of about CLP 450 billion per quarter, further improving productivity and operating efficiency levels.

Without a doubt, our growth trend in the retail segment has been accomplished through a business strategy that is focused on reinforcing customer experience by providing superior products and services through channels that clients demand.

Please turn to Slide #11. We have worked actively to enhance our financial services for our customers. We have enhanced customer contact channels as well as streamlined processes and implemented business intelligence tools to drive sales, among other initiatives. These have had successful results, as you can see on the chart on the right.

Current account originations has had strong growth figures, up 9.1% year-on-year, placing us first in terms of our peer group and personal checking account origination. We have done this by improving both delivery times of products and sales per account manager, as you can see on the chart on the right of the slide.

Additionally, as we have mentioned in previous conference calls, we are in the process of rolling out a new CRM commercial platform which is being developed in-house and is expected to be fully operational this year. This new platform should not only allow us to improve service quality and customer loyalty but also should continue boosting productivity and efficiency levels.

Nevertheless, all of these results have been much more difficult -- it would've been much more difficult to achieve if it wasn't for a strong brand, as you can see on the following slide #12. The Banker, together with Brand Finance, recently published its research on the strongest banking brands in the world. We are very proud to be ranked the first amongst Chilean banking brands with an AAA- rating, according to Brand Finance, which means that we have a very strong brand name that is valued at CLP 1.7 billion -- $1.7 billion, substantially higher than all of our local peers. We are also pleased to see that we have risen 17 slots in the global ranking, expanding our gap with our peers. This ranking is completely in line with our ranking on top of mind where we ranked first with a wide difference to our peers. We also continually reinforce our apps and continue to rank well above our competitors with a rating of 3.8 on average on the Apple and Google Play app stores, as seen on the chart on the right.

When we combine our excellent brand together with our superb customer service, as shown by our Net Promoter Score ranking, we can use this to attract new customers more easily and retain customers, as shown on the chart on the bottom right, in turn, allowing us to grow our loan book at a lower cost and drive fee-based services through cross-selling initiatives.

Please turn to Slide #13. We continue to be the financial institution with the best funding structure in the country, which is clearly one of our most important competitive advantages. As Rodrigo mentioned, the Chilean Central Bank began this year increasing interest rates with a 25 basis point hike. However, it is likely that the Board will maintain interest rates this year without changes, and the normalization process will continue next year. Consensus today points to a level around 3.5% by the end of 2020.

We have in turn gradually increased the maturities of our liabilities from 11 to 22 months during the last years, mitigating the temporary short-term impacts of the rise in rates. In the medium term, we expect to have a higher NII as a result of higher rates as our assets reprice and yield curves steepen, particularly in local currency. This is important for all banks, but we are most benefiting from the rise in rates since we have the largest portion of our liabilities [ via ] represented by DDA.

As you can see on the slide on the top left, demand deposits represent 27% of total liabilities, where more than half is from the retail segment. This, together with our strong credit risk ratings, has permitted us to post once again the lowest cost of funds in the industry of only 1.8% and allows us to have a very attractive NIM.

Please turn to Slide 14 on operating expenses. Total operating expenses increased 8% year-on-year, which was due to an increase of CLP 6 billion related to higher salaries and other benefits for CLP 3 billion. Severance indemnities related to organizational restructuring at an increase of CLP 1 billion related to variable compensation, in line with high levels of sales and financial products and services. The main driver in administrative and depreciation expenses was related to IT projects that have been made to improve productivity in our operations, such as our new CRM platform and to a lesser extent, billings and other maintenance expenses related to the new commercial partnership undertaken this quarter that will increase our ATM network in approximately 30% this year. It's important to note also that the application of IFRS 16 does not have an impact on our results. As a result of this, administration expenses dropped by CLP 7 billion this quarter, and depreciation and amortization increased by a similar amount as the prior concept of rent are now expected as amortization of intangible assets.

Consequently, our efficiency ratio increased to 49.7% this quarter, but this was principally due to the negative effect of inflation on operating income. Adjusting operating income with the same inflation level we had in the first quarter of 2018, our efficiency ratio would have reached levels around 46.4%, similar to the level recorded in the first quarter of 2018. Nevertheless, if we consider operating expenses as a percentage of assets, it's clear that our cost base has evolved in line with our business activity, as reflected by our stable cost of assets ratio of 2.5%.

Despite the worse efficiency ratio this quarter, there is lots of room to improve in the future. As Rodrigo mentioned in the beginning of this call, the expected increase in inflation should have a positive impact in revenues. Additionally, after a period of testing and evaluation, we are beginning to implement the time to adjust our service model in our branch network, especially in the consumer finance area, and at the same time, streamline processes in order to improve productivity in both the front and the back-office operation. These changes will be based on providing the value offering that is increasingly incorporating technologies to boost online banking, self-service terminals in branches and universal relationship manager with customers that not only handles the customers' debt but also their savings product -- products. The current fee relationship manager in Chile only handles customer debt products. This project will be implemented gradually over the next 18 months and will optimize -- and will continue optimizing the consumer finance branch network.

Please turn to Slide 15. This quarter reported a cost of risk of CLP 89.2 billion. As you can see in the upper right chart, half of the year-on-year rise was due to a strong growth, especially in the retail book, where the higher risks of the returns are also much higher than the average loan book. The other half was originated in an increase in allowances as a result of 2 main factors. First, our risk model is conservative, and it is influenced by seasonality effects. In particular, in the fourth quarter of 2018, we recorded lower than normal levels of cost of risk in line with our low level of delinquencies that were below 1.1%. On the other hand, in the first quarter of 2019, our NPLs normalized to 1.17%. And as a result, we posted a higher cost of risk this quarter of 1.27%.

Second, the incorporation of Falabella and [indiscernible] credit cards called CMR and Presto into the banking industry figures added certain variables that impacted risk models negatively, such as the indebtedness and delinquencies among others. Nevertheless, we are confident that our cost of risk levels will return to our guidance between 1% and 1.1%.

It's important to highlight that we strive to have the best credit risk policies in the industry, with the highest coverage ratios of nearly 200% and the most prepared bank-to-face negative cycles. We achieve this thanks to the high involvement of our Board of Directors and upper management as well as financial resources allocated to develop our risk strategy. We also believe as a result of these prudent policies that the new SME standard provisioning model will not have a material impact on our bottom line and will be well below the levels reported by our peers in the industry.

Finally, I have to emphasize that we are committed to continue growing responsibly, and we are confident that our cost of risk will return to levels around 1.1% in the coming quarters.

Please turn to the Slide #16. As you know, we reached a very important milestone in our history on April 30. Thanks to our successful track record, our shareholders saw us with the profits that we generated fully paid off all the debt it owes to the Central Bank of Chile. With this payment, we ended the last traces of the financial crisis that affected Chile in the 1980s, 17 years before the original deadline agreed with the authorities, as you can see on the bottom of this slide. The final payment triggered the dissolution solution of SM-Chile itself. Registered shareholders of SM-Chile A, B and D series of shares will receive approximately 3.4 Banco de Chile shares, while SM-Chile E stockholders will receive 1 Banco de Chile share for each of their respective shares of SM-Chile. Once this occurs, our free float will increase from 27.7% to approximately 44%. This will have very positive impacts in the index ratings on the Santiago Stock Exchange and the MSCI indexes. In fact, the local exchange will be the company with the highest rating of a level near 10%, and we expect that this should translate into improved visibility and the liquidity of our stock.

Please turn to the next slide, #17. Some key results this quarter were our ability to grow customer income by 9%, partially offsetting the negative impact of inflation during the quarter, which affected significantly noncustomer income. We continue expanding our customer base by adding nearly 30,000 new current account clients each quarter and posting good loan growth, especially on the retail segment, where SME loans grew almost 13% year-on-year, and Personal Banking loans was up 10% year-on-year. The risk was above trend, but this was influenced by our growth in retail loans and temporary effects, which we expect to normalize and return to a range of around 1.1%. Our adjusted efficiency ratio reached levels of above 46.4%, in line with the level posted last year. And we expect that we should continue seeing improvements in the medium term as a result of some of the initiatives we mentioned earlier.

Before moving on to questions, I want to highlight that we firmly believe in our long-term customer-centric strategy that is focused on providing the best customer experience in all the segments we serve by leveraging the use of technology to grow. We are confident that the positive economic scenario and solid capital and credit risk coverage levels, together with the competitive advantages, should permit us to continue delivering good growth in loans and present cross-selling opportunities that should drive customer income in the coming quarters and bottom line.

Thank you for listening. And if you have any questions, we'd be happy to answer them.

[Operator]

[Operator Instructions] Our first question comes from Jason Mollin with Scotiabank.

[Jason Mollin, analyst]

My first question is on the outlook for full year 2019, that you gave a lot of details about the optimistic outlook for the rest of the year. You mentioned after the fourth quarter results that you were looking for ROE in the 18% to 20% range. And given the weakness in the first quarter, I just wanted to make sure that you're on target to makeup, I guess, for a weak quarter throughout the rest of the year.

And my second question is more specific on the loan sales, the sale of consumer loans. I think we had almost CLP 500 billion and about CLP 600 billion in the SME segment. If you can talk about the strategic view there and how that impacts the bank. I think we also saw some sales in mortgage loans. How do you guys manage that? How should we think about that? And how does that impact the balance sheet and income statement, and should we expect that going forward?

[Pablo Ricci, executive]

Yes. We're still confident that we'll be in the range, as we mentioned in the fourth quarter, of a level of ROE that's between 18% and 20%. Some of the critical projects that we've been developing and improvements in terms of business intelligence should continue allowing us to drive customer income growth throughout the year. And we should see improvements in our efficiency ratio [ that's ] in line with the higher inflation that's expected for the remainder of the year. So in the first quarter, we had maybe a little bit -- we had the lower level of NIM closer -- well, probably below 4%. So we expect that should recover to levels of around 4.4%, in line with the expectations that Rodrigo said about inflation, that we're expecting about 2.7% for the rest of the year.

And in terms of also loan growth, I think it's important to mention that we should be seeing a level that's in line or slightly above the level that we're expecting for the industry, 10%, 11%. And that should also help us drive the bottom line.

And finally, I would say fees is also growing at positive levels. We're expecting that we should continue in levels of low double-digit growth in fees, which the main driver there is customer -- new customer growth.

In terms of what we're doing in consumer loans, originations and sales, one of the key drivers for that area is the risk intelligence. Everything we've been doing in business intelligence has been allowing us to grow strongly in that area, where last year, we implemented a new preapproved loan book, which is one of the main drivers for growth in that area. But we've also developed other initiatives in order to drive growth, such as personalized pricing models, our customer database, that we can bring in new customers. And we're actually one of the banks that's a strong -- or the fastest-growing banks in terms of new customers into the -- into our bank. So by having that, we can also cross-sell those customers into new products and services, and that includes consumer loans. And our focus for the future, one of our key drivers or key areas that we're looking to grow is particularly in middle and upper income individuals in consumer loans and also SME loans. So in SMEs, we've also launched earlier this year in January a preapproved loan book as well. And that's also helping to drive SME loan origination. And we think those 2 key areas should also help our bottom line throughout the rest of the year.

[Rodrigo Aravena, executive]

I would like to reinforce the idea related to the role of the macroeconomic drivers. So it's very important to keep in mind that in the first quarter, the inflation rate was only 0.1%. While for the remaining quarters of this year, we expect inflation to be between 0.6%, 0.7% per quarter, which will be positive for income for the banking sector. And it's important to keep in mind as well that the economic growth in the first quarter was only 1.8% in a context where we expect that GDP this year will grow nearly 3.2%, 3.3%. So in other words, we think that the first quarter was the weakest part of the economic cycle.

[Jason Mollin, analyst]

That's helpful. Maybe a little more color on the decisions to sell loans and how that works. So are these loans performing, are they nonperforming? How should we think about the impact of that on the balance sheet? Does that impact the NPLs? And are you also -- are you buying loans as well, or are you just on the sell side?

[Pablo Ricci, executive]

I -- Maybe there's a confusion when we're talking about origination. We're not actually selling the loan book. It's...

[Jason Mollin, analyst]

You're talking about loan originations, not sales. That's what you're saying.

[Pablo Ricci, executive]

Right. Right. It's just for growth. So the main driver of the growth of originations -- sometimes maybe it's confused with the word sales, but we're always talking about originations. Generally, we don't sell any loan portfolio. So...

[Jason Mollin, analyst]

Okay, so that's a -- you're not selling loans. That's a growth origination number that...

[Pablo Ricci, executive]

So generally, it's not a focus for us to sell our loan portfolio.

[Jason Mollin, analyst]

That's where I got confused.

[Pablo Ricci, executive]

[ Loan growth. Yes. ]

[Jason Mollin, analyst]

Okay. If that's origination and then amortizations, the net of that is what gives us the final loan book...

[Pablo Ricci, executive]

Right. Amortization, prepayments, right.

[Operator]

Our next question comes from Tiago Binsfeld with Itaú BBVA.

[Thiago Bovolenta Batista, analyst]

Actually, it's Thiago Batista speaking. I have 2 questions, one about provisions. In the press release, you mentioned about the impact of a retail company that came into the financial market in the financial [indiscernible] sorry. Can you guys quantify the amount of provisions that this event [ causes ]. I'm trying to normalize the [indiscernible] the level of provision of the bank in this view. My second question is about SM-Chile. Do you know when the SM-Chile holding company will -- you expect to be liquidated?

[Pablo Ricci, executive]

Okay. So for the -- for your first question, if you look at the key changes in our loan loss provision ratio, our cost of risk, sorry, half of the increase of the cost of risk was due to volume and mix and other, as presented on Slide 15, as deterioration. Of that almost CLP 10 billion, 20% of that rise more or less is due to the incorporation of these 2 credit cards, which gave us more information about customers and affected the provisioning models.

And in terms of your second question regarding when SM-Chile will be delisted and when this will all occur. Right now, we're waiting on the response from the superintendency. Once they give their approval, we'll be able to initiate the process of liquidating these 2 companies. And during this month, we're expecting -- hopefully this month, we're expecting to have more information and hopefully distribute the shares to the SM-Chile shareholders of Banco de Chile. So we're expecting this change to occur during this month, if not the latest, next month.

[Operator]

Our next question comes from Emilio Acevedo with Santander.

[Emilio Acevedo Caro, analyst]

I have 2 question. The first question is about opportunity growth on micro-finance business. If this will be -- specifically, I would like to know if -- do you see opportunities to grow on that segment, considering the higher level of digitalization that is happening in Chile? Do you have any specific estimates for that growth? And the second question is about acquired business. I would like to know if -- do you expect to continue working with Transbank or maybe to compete on this business?

[Pablo Ricci, executive]

Well, our main focus in Banco de Chile is the middle and upper income individuals and SMEs. The lower income segment banking today represents very little of our total loan portfolio, less than 3%. So it's an area that we see that's attractive to grow in, but it really depends on the service model and how we've been implementing changes in the service model in order to incorporate more the digital transformation of Banco de Chile. So it's an area that has some opportunity to grow, but it's not the main driver for the bottom line of Banco de Chile. In terms of Transbank, Rodrigo will go answer that question.

[Rodrigo Aravena, executive]

Okay. So maybe you know, in Chile, we have had a system that has been based on 3 parts. The main difference is that in most part of the most countries in the world, they have a system based on 4 parts. So now in Chile, there is a transition moving from the current system, which is based on 3 parts towards the 4 parts. The Finance Minister announced a process a couple of weeks ago, where there will be a different part of the system. Central Bank, the Finance Minister, Transbank, different banks, which are -- they are work together in terms of having the best transition over the long term. I think it's very important to wait for the final results of this process in terms of the timeline, the main challenges, the new equilibrium that we would have in the market. And after that, we will -- we can define what will be our strategy for the long term. So in other words, we don't have an important announcement on that front. But again, it's very important to wait for the final result for this transition, which is led by the Finance Minister now.

[Operator]

Our next question comes from Ernesto Gabilondo.

[Ernesto María Gabilondo Márquez, analyst]

A couple of question from my side. The first one is a follow-up in your ROE guidance. I believe it's very ample, the guidance range. So even with the rebound on inflation, don't you think the ROE will be more in the 18% this year? And how do you see your expectations for net income growth this year? I know that you don't give guidance on the bottom line, but any color in terms of no growth, single digit growth, any color will be much appreciated. And then on my second question is on competition. As you have mentioned, in housing loans, you experience less dynamic growth. So maybe that's related to competition. So I would like to know who are the most aggressive competitors that you're seeing? And what has been the strategy to differentiate from them?

[Pablo Ricci, executive]

Well, maybe I can give you some more information in terms of our overall guidance. In terms of ROE for this year, like we mentioned, over the medium, long term, it should hover in the range between 18% and 20%, with a target of 19%. But I think it's important that we can maybe say -- and go through a few of the other guidance.

So for NIM, we're expecting to return to levels of around 4.4%, in line with the higher inflation and our change of mix and overall loan book, which is focused in the middle, upper income consumer loans and SMEs. In terms of credit quality ratios, we should see an improvement in the next quarters to return to levels for the full year, in line with our guidance, which was around the 1.1% level. In efficiency, we should also see improvements in efficiency where levels should hover in the range closer to 44% with the better inflation figures and the implementation of new models, which, in the medium term, we should see a significant improvement of efficiency.

In terms of competition, I would say that all the Chilean bank industry has historically been very competitive. And we've seen in every segment that we serve, there is high competition, especially in the retail segment and also in the wholesale segment. In terms of any particular reasons behind store loan growth in the wholesale obviously we're always looking to grow profitably and responsibly. So in the case that there's -- we're not willing to grow in order to reduce our spread. So I would say, for the remainder of the year, we should be in line with the industry. And the intention is to be -- actually gain market share in the retail -- especially in the retail loan book and something -- price increments in the wholesale loan book.

[Ernesto María Gabilondo Márquez, analyst]

So just to clarify on your guidance. So I agree with you that in the next quarters, we should see higher NII, higher fees, lower OpEx and improvement in efficiency, improvement in the cost of risk, but that should be in the next 3 quarters. But for the full year after the first quarter, you are not seeing any impact on your expectation for the full year?

[Pablo Ricci, executive]

We think that the -- our full year guidance should be in the levels I just mentioned. So we're seeing a recovery. We expect a positive recovery in the next quarters, already as you can see in the level of inflation in March, which affects April's numbers. There's a higher inflation of 0.8 difference, 6% on average. So we should have -- the banking industry in general should post attractive levels of NII in that month. And we're expecting that the rest of the year should be positive in that sense. And in customer income growth, as you saw in the presentation, was almost offset or net -- almost completely offset the lower income generation from inflation this first quarter. So really, as long as inflation returns to Rodrigo's expectations, we think that we should be in those levels.

[Operator]

[Operator Instructions] At this time, there are no further questions. And that this concludes the question-and-answer session. I would like to turn the floor back to Banco de Chile for any closing remarks.

[Pablo Ricci, executive]

Thank you for listening to our call, and we look forward to talking to you for our next quarter financial results.

[Operator]

Thank you. This concludes today's presentation, and you may now disconnect. Have a nice day.