Banco de Chile

SGO:CHILE

Earnings Call Transcript 2019-Q3

[Operator]

Hello, everyone, and welcome to Banco de Chile's 3Q '19 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; and Daniel Galarce, Head of Financial Control. 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 forward-looking statements.

I will now turn the call over to Mr. Rodrigo Aravena. Please, you may proceed.

[Rodrigo Aravena, executive]

Good afternoon, everyone, and thank you for attending this conference call. Today, I'll begin with an overview of recent trends observed in both the Chilean economy and banking industry and then Pablo Mejia, our Head of Investor Relations, will provide a deeper analysis of the performance of Banco de Chile during the last quarter.

Please turn to Slide #3. The annual GDP growth rate has a positive evolution this year, increasing from a weak 1.6% in the first quarter to 3.3% in the last quarter. This reflected an important resilience relative to the rest of the world where the GDP growth decreased in most countries. The softer performance of Chile relative to other OE3 countries can be seen in the table chart. On a sequential basis, the economy grew 2.9% annualized in the last quarter, even though the lower-than-expected growth in September. Additionally, this rise has been boosted by the weak comparison base from 2018, causing a positive statistical effect.

As Chile is a most open Latin American country to the global economy, it's worth to understand how the recovering took place. The answer to this question is simply the result of our policy framework. Thanks to the low and stable inflation, the Chilean Central Bank has been able to reduce the monetary policy rate this year from 3% to 1.75%, which is one of the lowest rates in the world.

In the bottom left chart, you can see how expansionary the monetary policy rate in Chile as compared to other countries in the region. It's interesting to see that Chile is the only country with negative interest rate in the region. The shipment inflation has remained below the target of 3% since late 2016, as a consequence of their below trend GDP growth despite the recovery in the last quarter and the stable growth in real wages.

As is a public knowledge, since mid-October in Chile, we've seen a social unrest that leading damage in infrastructure and lower activity in different sectors, mainly those related to consumption and services. In this context, we think it's important to analyze the potential impact in both the overall economy and in the banking sector. On the macroeconomic side, undoubtedly, there will be a drop in economic growth and confidence measures. GDP growth for October, which will be released on December 2, will probably be negative, anticipating a lower expansion for the whole year.

In response of this, the government has announced several measures such as an increase in minimum pensions and labor income among others. Additionally, the government implemented several changes in its cabinet in order to address the new agenda. Additionally, there has been a preliminary agreement to introduce changes to the current tax system by increasing taxes to high income individuals, removing the integration of the income tax regime and implementing tax benefits to SMEs.

This tax proposal aims to finance the rise in structural spending in order to mitigate the impact in the fiscal deficit. Nevertheless, it's important to mention the existence of sovereign wealth funds and other fiscal savings equivalent to almost [ $30 million ], allowing the possibility of financing fiscal measures.

As a result of these events, Banco de Chile had a direct impact in its infrastructure, resulting in 9 branches and 89 ATMs with severe damage, which represent a minor part of our distribution network. We don't expect a material impact to our results attributable to this damage. Additionally, we are aware about the existence of other indirect impacts that may temporarily affect our figures associated to lower activity and origination and collection as a consequence of several constraints for the development of normal activity in the country.

Beyond this final impact, I would like to highlight the absence of material impact in customer service. Thanks to the commitment of our employees and the effectiveness of our digital channels, our customers were able to undertake most of their transactions. In this environment, we have modified our baseline scenario for this and the next year.

Please move to Slide #4. In relation to economic growth, we have reduced our forecast for this year from 2.5% to 2% as a consequence of the expected short-term negative growth. For the next year, we reduced it from 3% to 2.5%. We also expect inflation to remain below the target of the Chilean Central Bank, which is 3%, at least until 2021. Specifically, we expect the CPI to end at 2.6% in 2019 and the following year.

In this environment, we expect the Chilean Central Bank to continue reducing the interest rate. In the last meeting, the Board cut the interest rate to 1.75% in line with market expectations. According to the press release that accompanied the decision, the Chilean Central Bank sees room for further rate cuts. Therefore, we expect the interest rate to be at 1.5% at the end of this year.

Now I would like to discuss briefly the evolution of the Chilean banking industry. Please turn to Slide #6. As you can see on the chart on the left, loans in the Chilean banking system have grown almost 10% over the last 12 months and accelerated to 3.1% quarter-on-quarter or 12% annualized. On a sequential basis, loan growth was driven by an acceleration in commercial loans that drove almost 15% quarter-on-quarter annualized, followed by mortgage loans that expanded just over 11% quarter-on-quarter, also annualized.

In terms of results, the Chilean banking industry posted net income of CLP 624 billion in the third quarter, well above the level recorded last year. The higher level of growth was partially due to the incorporation of some portfolios into the banking industry from retailers. In terms of return on assets, the industry maintained its profitability levels stable at 1%. This shows resilience and proven capabilities of the Chilean banking industry to adopt strategies efficiently in order to cope with a less dynamic economic cycle.

Now I would like to pass the call to Pablo, who will go into more detail about our financial results. Please turn to Slide 8.

[Pablo Ricci, executive]

Thanks, Rodrigo. Once again, we were able to lead the quarter in terms of net income with CLP 152 billion. It's also important to highlight the large gap in profitability in terms of net operating income as a percentage of interest-earning assets, as you can see on the chart on the right.

Our consistent strategy and customer focus have allowed us to deliver sustainable and superior profitability for our shareholders. As shown on the -- please turn to Slide 9. As shown on the prior slide, net income reached CLP 152 billion, equal to a return on average equity of 17.8% this quarter and year-to-date CLP 446 billion with a similar ROE of 17.7%. As you can see on the chart, on the bottom of the slide, the 19% increase achieved in the third quarter, net income versus the same period last year was due to strong operating income growth, together with lower loan loss provision expenses, which more than offset a moderate rise in operating expenses and taxes.

On the following slides, I will go into greater detail how our shift towards retail segment, together with higher productivity, cost control and stable risk levels are contributing to these positive numbers.

Please turn to Slide 10. Operating revenues increased 8% year-on-year as a consequence of an expansion of our customer income that rose 13% year-on-year, while noncustomer income dropped 11% year-on-year. In turn, the rise in customer income was due to higher net interest income, thanks to effective commercial strategies that leveraged business intelligence tools to concentrate growth in key market segments and products that provide more attractive returns with adequate levels of risk.

Customer income was also driven by an important increase in fees that rose CLP 31 billion as a result of first, insurance brokerage that was up CLP 18 billion related to fees received from joint venture we made recently and the year-on-year growth of 18.7% in written premiums; and second, transactional fees from services that grew CLP 10 billion from credit cards and ATMs. Additionally, mutual fund management fees also advanced CLP 3 billion, equal to a rise of 15% year-on-year.

This also permitted us to partially offset lower noncustomer income revenues owed mainly to the lower effective inflation on our U.S. structural GAAP position, as you can see on the reduction of our net interest margin on the chart on the top right. Lower inflation took place in conjunction with higher counterparty value adjustments for derivatives, which more than offset an improved performance of our trading and AFS desk that benefited the sharp decrease in nominal and real interest rates.

Please turn to Slide 11. Total loans grew 9.3% year-on-year in the third quarter, as seen on the chart on the left, led by an increase of 12% in both SME and consumer loans, which are our target markets. Additionally, wholesale loans rose 5.6% year-on-year and 4% quarter-on-quarter, thanks to the higher dynamism of the multinational infrastructure banking unit in the last quarter.

It's also important to highlight the benefits of having a well-diversified loan book. When one segment has less dynamic demand or when there's not an adequate balance between risk and return, other segments usually offset that weak performance, as has been the case in recent years.

Regarding SMEs, we continued our focus of building a strong and solid customer base in this unit. It's important to note that we consider that we have the best SME portfolio in the industry with the lowest NPLs. This has allowed us to consistently record through all the cycles low loan loss provision levels, which ultimately contributes to maintain a high and sustainable profitability for our bank.

We are confident that by providing the best experience to our customers, based on deeper use of business intelligence with top physical and online channels, coupled with prudent risk policies will permit us to continue growing with favorable risk return equation that Banco de Chile has become known for.

As this slide shows, we have been able to grow by maintaining the best funding structure in the industry. Specifically, we continued leading the sector with the lowest financing costs, as you can see on the chart on the top right, thanks to our wide and stable demand deposit base from both retail and wholesale customers that choose to bank with us over our competition. This is not a coincidence. We are perceived as the safest bank in the industry, a situation that's confirmed our superior corporate risk ratings of A, from Standard and Poor's and A1 from Moody's, reflected in lower-risk premiums reached when we issue bonds. This allowed us to place bonds in the local market and overseas in favorable conditions. In the local market, we issued approximately CLP 716 billion with tenors ranging from 4 to 12 years, while we placed CLP 120 billion abroad with maturities between 12 and 20 years in markets such as Hong Kong, Australia and Peru.

It's also important to mention that all of these placements on foreign currencies are hedged to neutralize the impact of foreign exchange and interest rate changes. Additionally, we also issued this quarter subordinated bonds for over CLP 200 billion in Chile with maturities of around 20 years, allowing us to improve our capital ratios.

It's worth mentioning that the subordinated bonds that we placed in the local market with spreads of only 10 to 15 basis points above senior bonds, makes it clear of the low-risk premium that we have and how this translates into a competitive cost of funding.

Responsible growth and prudent risk management are fundamental pillars of our success and are a central part of our long-term strategy. Please turn to Slide 12. As you can see on the chart on the left, loan loss provisions dropped from CLP 95 billion in the third quarter of 2018 to CLP 89 billion in the third quarter of 2019. The main driver for the reduction in provisions was chiefly related to the retail Banking segment that decreased by CLP 24 billion, owing to higher risk charges incurred in the third quarter of 2018, as a result of the update of our group based credit risk models and the implementation of a standardized risk matrix for commercial loans evaluated on a group basis.

This decrease was partially offset by volume mix, positive credit behavior of wholesale customers last year and the negative impact of the depreciation of the Chilean peso to the U.S. dollar in the third quarter of 2019, altogether totaling CLP 18 billion year-on-year.

Additionally, as you can see on the charts on the bottom of this slide, our loan portfolio continues to perform substantially better than our peers in terms of credit quality, as measured by our delinquency ratio, and we have considerably higher coverage. If we include additional provisions, our coverage ratio would actually increase to roughly 251%. We are confident that our proven track record to manage risks should mark a clear difference with our competitors. Our prudent risk policies and the important resources that we have put in place allow us to have proactive risk management approach that is deeply present throughout the entire life cycles of our customers. This, no doubt, assists us to identify risks quickly and implement strategies to minimize our exposures.

Please turn to Slide 13. As you can see on the chart on the left, total operating expenses grew by 5% year-on-year. This rise is attributable to administration expenses related to IT and maintenance. More specifically, the expansion IT cost was explained by external advisory services, software licensing and IT support improvements in cybersecurity and the implementation of strategic projects.

The higher maintenance expenses was related to the expansion of our ATM network that grew 26% year-on-year. Through different projects that are aimed at improving service and maintaining a permanent focus on cost control, we have optimized our operations, and we are beginning to see these advancements in productivity, reaching an efficiency ratio this quarter of 44%. Nevertheless, we believe that we have room to continue improving operating expenses.

The chart on the bottom right shows how we compare to our main peers. We are very confident that through our new service models, the implementation of business intelligence tools together with digital initiatives to improve and automate commercial and operative processes should be able to continue improving our efficiency ratio in the long term.

Now I would like to take a few minutes to discuss what is happening with Basel III in Chile, and how we are prepared to implement this new regulation. Please turn to the next Slide #14. As you know, the implementation of Basel III is one of the most relevant regulatory changes that is taking place at this time in the Chilean banking industry and will converge the sector to international standards. Over the past years, we have made an effort to grow our capital base, based on profitable growth, a prudent risk -- and a prudent dividend policy, which was adjusted in previous years to 60% of the distributable net income. Thanks to the strategy, our Tier 1 capital ratio reached 11.1% with almost 0 assets that deduct from capital under the current regulation.

It's also important to mention that we are the bank with the highest level of additional provisions equal to 0.7% of risk-weighted assets, which are permitted to be used during the phase-in period as additional Tier 1 capital.

During this quarter, we increased our subordinated bonds amounting to CLP 217 billion, which can be classified as additional Tier 1 capital during the phase-in period of Basel III. So far, the Chilean regulator has published some specific rules for comments, including methodologies related to the calculation of operational risk-weighted assets and to determine the systematic importance of banking institutions or systemic buffers. Even though the proposed methodologies lack enough detail to determine our actual position, preliminary estimates indicate that we would be subject to a capital charge of operational risk of around 5% range for our current risk-weighted assets, which is in line with our former expectations.

Similarly, the proposed methodology for determining systemic relevance of banking institutions would translate into a capital charge of 1.2% to 1.7% range that is lower than the 2% rate we currently face under Basel I. Finally, based on the information that we know today, we expect that in the coming quarters, we will have more information regarding our fully loaded capital position when the most important part of the regulations related to risk-weighted assets are put in consultation.

All in all, we are confident that our capital position will allow us to face successfully the new regulatory requirements. We strongly believe that the consistency of our long-term responsible growth strategy will bring fruit in the future.

Please turn to Slide 15. In recent years, we have focused on strengthening our sustainability and corporate reputation, we are strongly convinced that we must build strong relationships, not only with our clients but also with our other stakeholders. This has become a critical part of our strategic plan and long-term sustainability.

In this context, we are proud to be the bank with the best ESG disclosure in the country, as can be seen on the graph on the left. This index, which is available on Bloomberg, is a measure based on the information we provide for environmental, social and corporate governance. This is a consequence of several measures that we have taken during the last year, and some of them include on the social level, we have always been committed to the development of Chile. Our contribution has been present in the rehabilitation, inclusion of people with disabilities in the workforce and the promotion of entrepreneurship and supporting high-quality education for more vulnerable people. We've also supported since the beginning, 40 years ago, Teletón, which is the most important charity campaign that exists in Chile. We have begun to carry out different activities related to environmental sustainability. And along with several activities that promote environmental awareness through recycling campaigns, efficient use of energy and paper, among others. We also -- it's important to mention that we also issued the first green bond in our history.

Since 2014, we have published, in addition to the annual report and the 20F report, a sustainability report, which has been continuously improved over time. This report, which is available in both Spanish and English, has GRI4 standard in line with the global best practices. Given the improvement in the quality and quantity of information that we make available to the market, this year we were recognized by the DEVA Institution for having the best annual report and sustainability report in the local financial industry.

These actions are part of many others taken in order to strengthen the long-term sustainability of our bank. For more details, you can read the annual report and the sustainability report, both of which are available on our website.

Finally, before moving on to questions. As a consequence of our consistent strategic priorities, which are based on digital transformation, ongoing penetration in the retail segment, we are confident that we'll continue delivering positive results in the future.

Thank you. And if you have any questions, we will be happy to answer them.

[Operator]

[Operator Instructions] The first question will come from Jason Mollin of Scotiabank.

[Jason Mollin, analyst]

My first question is on the macro outlook. Rodrigo, perhaps you could talk to us. You mentioned the outlook for real GDP next year in the 2.5% range. Can you talk, given the recent developments, can you talk about the discussion around potential GDP for Chile? Can we get back to the 4% level going forward? And my second question for you, Pablo, would be, you mentioned on the slide about efficiency, you mentioned digital initiatives. If you can provide some details on where the bank stands now and perhaps some metrics showing the trends in this area?

[Rodrigo Aravena, executive]

Okay. Jason, this is Rodrigo Aravena. Thank you very much for your question. With respect to the question of economic environment, I think that we have to consider 3 different things, okay? First of all, in the very short term, I mean, in the economic growth of October, perhaps November, we don't have enough information, there is a possibility of having a negative economic growth for October. We can't rule out an [Foreign Language], which is the monthly GDP figure of around minus 1%, okay? And we can't also rule out the possibility of having a pure economic growth for the fourth quarter as a whole. In short, we will likely have negative news in terms of employment, growth, et cetera, in there for the fourth quarter. With respect to the 2020 economic growth, I think that is very reasonable to expect a below trend economic growth.

In the previous conference call, we were expecting an expansion of the GDP of around 3%, which was in line with the potential GDP growth, but now we are expecting a 2.5%, but we have a downward bias in this estimate, which means that we can't rule out lower-than-expected growth because we are aware that there are some risks in the global economy, as you know, the International Monetary Fund, for example, reviews the forecast for economic growth for the global economy for the next year, which is a negative news for us. And additionally, we have more uncertainty in terms of the evolution of the global economy as a consequence of recent events.

Finally, with respect to your question about the potential GDP growth, we don't have enough information as to have a final estimate in terms of our capacity of growth in the long term. I'm saying that because in one hand, there are some reasons from the global economy supporting a more negative bias for growth. But as perhaps you remember, in the last monetary policy report, the Central Bank estimated that as a consequence of the integration in Chile, we have a better capacity of growth because of the impact on the labor force.

The key question here today is, how will be the reconstruction activity? How will be the fiscal policy and other policies that we are discussing now in Chile? And therefore, I think that is reasonable to expect. So far, based on the available information, that GDP growth in Chile remains around 3%. But for sure, in the next conference call with more information, we will likely have more accurate estimate in terms of our capacity of growth for the long term.

[Pablo Ricci, executive]

In terms of expenses, we're expecting for the next year is something around low single-digit growth, similar levels of efficiency that we had this year. And we haven't changed our targets that we've spoken before. Our intention of where we'd like to be is still continuing to maintain and actually, I mean, improve our efficiency level by 3 percentage points. And how are we doing that? Well, we've implemented many different projects in the past and those are bearing fruit today. So over -- since the beginning of 2015, we've implemented different tools and initiatives in order to digitalize the bank better, in order to automate the back-office processes, and that's what's allowing us today to sell more or originate more loans, which are not only focused on originating more loans, but also in acquiring new customers in all the segments.

So some of the more recent projects that we had implemented, a new preapproved loan model for the SME book, which has been very successful this year. We also are implementing a new service model in the branch network, which is also very positive in terms, not only in improving the cost base, but also improving the origination, selling in those branches. And it's also improving the customer relationships and net promoter score. Looking forward, we're looking at continuing to reinforce all of our apps, our website, which are already rated #1 in Chile, but we think we can continue improving and giving them better customer service and providing the products and services through the channels that our customers are demanding. And we believe that there's still room to continue improving the back-office automation of processes in order to reduce -- to continue growing without the need to increase expenses in the same rate.

[Jason Mollin, analyst]

That's helpful. That's good color. Any kind of metrics that you would talk about in terms of percentage of transactions taking place digitally, the trends there versus, let's say, in the branch or any kind of digital sales metrics that you could share?

[Pablo Ricci, executive]

Yes. In terms of metrics, in terms of online branch -- online and branch monetary transactions, so actually, money that's been moved around. We have -- in total, we have in the branches, decreases generally of around the 7% range. While online, which includes the mobile phone and the website, is increasing 22% or just -- over 20%. What's really interesting is the importance of mobile banking. So if we look at the monetary transactions in mobile banking, it's actually -- it's probably expected this year or very soon to be the most important channel in terms of transactions. Today, it represents almost half of the online transactions, and the mobile monetary transactions are growing over 40%. While the website is growing at a slower rate of around 10%. So it's been very successful, the online banking for us.

[Operator]

The next question will come from Claudia Benavente of Santander.

[Claudia Benavente, analyst]

I was wondering if you could provide us more color on what you expect a little bit on the cost of risk side. Like trying to get a little bit of sense talking to other banks as well, many -- some have indicated that maybe there could be some deterioration as the collection process has become a little more challenging due to the current crisis that we are leaving. So I was wondering if you're facing any challenge in that respect.

[Pablo Ricci, executive]

Based on the information that we have today, we expect that the long-term loan loss provisions should remain similar to the recurring rate that we've had in the past of around 1.1%. Obviously, nevertheless, the temporary volatility depending on the current events or on the economic cycle can adjust that slightly. And obviously, during these times, it's a little bit more difficult to do collections. So that could have an impact, but we expect that this is more of a temporary event, more than something that we would expect to be long term.

Also, as we always mention, I think it's super important to mention that we put a significant amount of resources in order to control risks and to implement prudent policies. So we're always looking at growing responsibly, and we always focus to have a good relationship between risk and return in all the segments that we provide services for. And I think that's one of the main competitive advantages of Banco de Chile. And if you look at our track record, it's something that stands out.

[Claudia Benavente, analyst]

Great. And one more question, if you can give us, again, more color on the Basel III requirements? You have an excess of capital, should we expect Banco de Chile to pay an extraordinary dividend? Or you would be -- feel more comfortable of holding -- on holding in an extra capital position to face any, I don't know, macro uncertainties?

[Pablo Ricci, executive]

We think that we're well prepared to implement Basel III in Chile, but it's very difficult to give guidance or understand how they would be implemented in Chile without one of the most important pieces of information of the weights of the risk-weighted assets. So today, what we've done is improved our capital position, and we're comfortable where we're at today. And in the following quarters, we will have more information regarding our capital position.

[Claudia Benavente, analyst]

And what would be a comfortable level for the CET1 ratio, looking forward, like a minimum CET1?

[Pablo Ricci, executive]

We're -- we still have to have all the information from the regulators in order to understand well our requirements, and how we would like to maintain Basel III within Banco de Chile.

[Operator]

The next question will come from Neha Agarwala of HSBC.

[Neha Agarwala, analyst]

I wanted to ask about the fee income, you saw a very strong growth in noninterest income this quarter, how much of that is sustainable? And what is the level that you expect for this year and next year? And primarily insurance, which has been growing at a very good pace. What is the reason for that growth? And what is the outlook for that? And my second question is about your loan growth. It has been quite stable at around 9%. With the current [ unrest ] in today, do you see a slowdown in loan growth? Would it be more supply driven or demand driven? And any specific pocket of concern that you see for yourself?

[Pablo Ricci, executive]

In terms of -- for fee growth, we expect in the medium term, high single digits level. But if we look at what's been happening today, the main growth -- the growth that we've seen is through insurance, as I mentioned, that we entered into a joint venture with an insurance company, and that's been providing us healthy fee growth. Also, we've had very good fee growth from cards as well as ATMs because we've grown the ATM network significantly, and our mutual fund business has been growing quite positively as well with an increase of 15% in assets under management. In terms of loans for us and the industry, what we're expecting is, obviously -- what we can say because it's important to take into consideration the current situation, which is occurring in Chile, which is making it a little bit more difficult to do the everyday activities. So this, in turn, is affecting different areas of the economy, which is the, for example, retail, sales, salaries and of course, loan originations.

So as Rodrigo mentioned, we expect the GDP in the fourth quarter will slow down and that 2020 will be weaker than our original expectations in the past, in turn, affecting loan growth, obviously. So if we -- we also have to review consumer and business confidence levels in order to understand the impact of their origination. But it's reasonable to expect the elasticity of loan growth to GDP should grow slightly lower maybe based on the scenarios and 2x in 2020. And we're expecting something around the 7% nominal range for the industry. And in terms of Banco de Chile, we think in line with what I said. We are focusing on growing responsibly and taking care of our risk-return relationship and aiming to concentrate growth in high-quality SME customers as well as higher net worth individuals in the retail segment.

[Neha Agarwala, analyst]

Okay. If I can ask one more question. I noticed that your LDR has been increasing gradually. Any steps that you are taking to improve your funding base and to bring down your LDR? Or that is not a concern to you?

[Pablo Ricci, executive]

Which indicators, sorry?

[Neha Agarwala, analyst]

Loan-to-deposit ratio.

[Pablo Ricci, executive]

It's important to mention the loan-to-deposit ratio is influenced by time deposits. So if you looked at the past of Banco de Chile, what we've done is, we have replaced time deposits for bonds. And generally, bonds, what we've done is changed the way how we fund the bank in order to take on more dependable funding versus short-term funding, which would be time deposits replacing time deposits with long-term bonds to fund the mortgage loan book. So if you look at our loan-to-deposit ratio and exclude those mortgage loans, it's much more in line with international standards.

[Operator]

The next question will come from Yuri Fernandes of JPMorgan.

[Yuri Fernandes, analyst]

I had the first question regarding expenses. If you have any estimates of like the wage reduction, how much it could hurt personnel expenses if it's implemented with reducing the weekly hours for 40 or below 40? If you have any kind of estimates on that? And second question is regarding buybacks. I think it's not a common topic in Chile, but what would be the pros and cons of having buybacks at those levels?

[Pablo Ricci, executive]

In terms of what's being talked about the 40-hour work week. For Banco de Chile, it's not very material because we already have our workforce working at 41 hours and 15 minutes. So in essence, the loss for us would adjust their daily working hours by only 15 minutes per day. So it's not a material impact for Banco de Chile that change. But [indiscernible]

[Yuri Fernandes, analyst]

The employees are 41? All the employees are 41?

[Pablo Ricci, executive]

Yes, for Banco de Chile. So it's not a -- for Banco de Chile, it's not a material -- it's not an issue at all.

[Rodrigo Aravena, executive]

There's not a material difference between the 40 hours and the average working hours in Banco de Chile. That's the point.

[Yuri Fernandes, analyst]

Okay. No, I was just surprised because looking to the unions of the banks, I think every bank has a lot of unions, but the main ones for most banks is 45 to 45, so surprising that it’s 41.

[Pablo Ricci, executive]

Banco de Chile for a very long time has been at this level, over 10 years.

[Yuri Fernandes, analyst]

Okay. So no major impact on that?

[Pablo Ricci, executive]

No. And the second question was?

[Yuri Fernandes, analyst]

Regarding shares buybacks, like if the bank would consider doing buybacks at those levels?

[Pablo Ricci, executive]

Share buybacks is very difficult in Chile, and it's not something that's very common. So it would be something that would have to take into consideration in a future period of time. But it's not something that we're looking into at this time. We can't rule it out, obviously. But at this time, it's not something that's been discussed with the market anyway.

[Operator]

The next question will come from Tito Labarta of Goldman Sachs.

[Daer Labarta, analyst]

Just following up a little bit on the recent events, and I know you kind of lowered the GDP growth for this year. But just any sort of immediate impact that you guys have done in terms of just kind of running the bank in terms of maybe changing your credit granting policies? Any update just in terms of the branches or expenses related to that or delays in opening up some branches and how that could impact the business? I just want to get a little bit of sense of kind of some of the short-term impact if you can quantify a little bit how that could play out?

[Rodrigo Aravena, executive]

Give me -- one second, please. I think it's very important, first of all, to pay special attention to the coming information because we don't have enough information as to have a more accurate evaluation in terms of the final impact on the GDP growth for the next year, et cetera. So far, we have some bias in terms of the downward adjustment in terms of GDP growth, perhaps in employment as well, et cetera. So what we can say so far is that we are not expecting a material impact in terms of result for the next year, et cetera. What we have to say here is that we can't rule out from adjustment in terms of cost of risk, NPS, et cetera, in the very short-term as a consequence of -- the -- some constraints for the normal activity in the GDP in this month. However, it's very important to mention that we expect these changes will be only temporary, okay? So what we are expecting is a normalization over the next quarters in terms of cost of risk, in terms of loan growth, et cetera, et cetera. So -- give me one second, sorry.

[Pablo Ricci, executive]

And in terms of other areas of the bank P&L fees, for example, we don't think that there's a material impact in those lines.

[Rodrigo Aravena, executive]

Sorry, one other thing to consider, Tito, not only for Banco de Chile for the industry as a whole is that we will likely have a more timing and that is for the next year. In terms of below trend economic growth, some pressures in terms of lower interest rates. So we are expecting that the Central Bank reviews interest rates next year, we can't rule out that the economy will take a longer time to convert towards potential GDP growth rate. So all in all, we are aware in terms of some challenge coming from the low -- the below trend economic growth, the lower than 3% inflation rates, lower interest rates. So we are aware about this challenge coming from the macroeconomic side, not only for Banco de Chile, for all the industry in general.

[Operator]

And this concludes the question-and-answer session. At this time, I'd like to turn the floor back to Banco de Chile for any closing remarks.

[Pablo Ricci, executive]

Thanks for participating in this quarter's call. We look forward for the next quarter. Thanks.

[Operator]

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