Banco Itau Chile

SGO:ITAUCL

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to Itaú CorpBanca First Quarter 2021 Financial Results Conference Call. [Operator Instructions]

Now I would like to welcome is Ms. Claudia Labbé. Ma'am, the floor is yours.

[Claudia Montevecchi, executive]

Thank you. Good morning. Thank you for joining our conference call for our first quarter 2021 financial results. Before proceeding, let me mention that our remarks may include forward-looking information and actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors.

I would also like to draw your attention to the financial information included in this management discussion and analysis presentation, which is based on our managerial model, in which we adjust for nonrecurring events, and we apply managerial criteria to disclose our income statement.

This managerial financial model reflects how we measure, analyze and discuss financial results by segregating commercial performance, financial risk management credit risk management and cost efficiency.

We believe this form of communicating our results will give you a clearer and better view of our performance through this different perspectives. Please refer to Pages 9 to 12 of our report for further details.

With us today in this conference call are Mr. Gabriel Moura, CEO; and Mr. Rodrigo Couto, CFO. Mr. Moura will comment on 2021 first quarter results and our strategic evolution as well as recent events. Afterwards, we will be available for a question-and-answer session.

We have included a Q&A box on the console where you can type in your questions if you are not connected by phone. We will take questions from both the phone and the console. For the latter, we will read and answer your questions verbally.

It is now my pleasure to turn the call over to Gabriel.

[Gabriel De Moura, executive]

Thank you, Claudia. Hello, everyone, and thank you for joining us for our 2021 first quarter earnings call. Today's presentation has 3 parts. An update on COVID-19, our first quarter 2021 results and an update on our transformation plan and business strategy. So we'll be straight into Slide 3.

While Chile gained international attention from the speed of its vaccination process during the first quarter of 2021, new infections surged to record levels.

As a result, mobility restrictions were reintroduced and international borders were closed. These strict quality measures, which, for a while, affected almost 90% of the population are now being rolled back. Chile's vaccination process has been one of the fastest in the world, outpacing both the U.S. and the U.K. in terms of the doses administered per 180 inhabitants.

As of April 30, 8.1 million people in Chile had received at least 1 dose of the vaccine, and 83% of the people over 60 years old have received both. We expected this speedy vaccination effort to pave the way for a significant economic reopening in the coming months.

So let's move to Slide 4. The Chilean authorities continue to act swiftly as well as on the economic recovery front. The government announced an expansion to the 2-year COVID fund by over USD 6 billion. That's 2% of the Chilean GDP. The Central Bank of Chile also has launched the third stage of its Credit Facility Conditional on Increasing Lending FCIC 3 amounting to $10 billion over 6 months. Congress has also approved the expansion of the users and the benefits of the guarantee fund for SMEs before that. Legislators also approved a third 10% pension withdraw.

We also more demonstrated our commitment to being part of the solution through our participation in the FOGAPE reactivation program. We granted almost CLP 268 billion of FOGAPE Reactiva guaranteed loans. Achieving a participation of 11.3%, which is higher than our overall market share.

Collectively, the Chilean authorities have acted decisively in responding to the pandemic crisis, both on the sanitary and economic fronts. With positive impact both in economic activity and on the credit cycle.

Nevertheless, there are medium to long-term consequences of the economic measures, they are difficult to assess and may turn out to be significant in the future.

If we can please move to Slide 5. Prior to the latest lock down in Chile, Itaú was building strong momentum. In the short term, the latest quality measures temporarily hindered economic activity. But the sustained progress of the vaccination, a strong external impose for better terms of trade, support from macro policies and the carryover effects are consistent with a significant growth rebound this year.

We continue to see GDP expanding 6.5% in 2021, following the 5.8% decline last year. Moreover, risks remain cited to the upside. We still see inflation close to the 3% target over our forecast horizon as the output gap is still wide.

Lastly, we expect the first rate hike of the cycle to come in the last quarter of 2021 from the first quarter of 2022 previously. While we see only 125 basis points rate hike this year, in the last meeting of 2021, a faster reopening of the economy than we currently expect in an environment of high terms of trade would probably lead the central bank to increase rates by more before the year ends.

In Colombia, we expect the economy to bounce back with growth of 5% this year after shrinking by 6.8% in 2020. We also expect a broadly stable current account deficit this year. And a wide 3.4% of GDP compared with 3.3% of GDP last year.

Inflation is on track to close this year at 2.8%. We believe there is still large output gap, along with well-behaved inflation and inflation expectations, support rates remain stable at a low 1.75% for the remainder of this year. However, the risks still toward early rate hikes is global financial conditions keep tightening.

Now moving forward, let's talk about the bank -- how the bank performed for these 3 months of 2021. On Slide 7, we share some of the highlights for the first quarter 2021.

Our consolidated net income was CLP 95.1 billion and CLP 84 billion in Chile, which is the highest quarterly net income in our history. Consolidated return on tangible equity was 21.5% and return on tangible equity for our Chilean operation was 25.4%.

Our revenues in Chile were boosted by financial margins with the market. Expense growth remains subdued, with costs declining 0.4% quarter-on-quarter. Cost of credit was quite benign across all our portfolios. Resulting in an 89.3% reduction relative to last quarter when we reinforced provisions for corporate and SME clients.

While we do not believe that the levels of profitability achieved in the first quarter will be maintained going forward. We do believe that this is strong first quarter sets up for a significant rebound in profitability this year.

Moving on to Slide 8, we show that our loan portfolio grew by 1.4% in the first quarter, which is broadly in line with our guidance of mid- single-digit loan growth for 2021.

Our portfolio grew 2.3% in retail and 1% in wholesale, also in line with our strategy and guidance of focusing on retail growth while being selective in terms of the returns for wholesale line. Our strategy for wholesale has enabled us to significantly improve margins and therefore, to achieve higher returns on capital.

On Slide 9, we see that our financial margins with clients in Chile decreased 1.6% in the first quarter. Mainly due to seasonal effect of the sale of the student loan portfolio in the fourth quarter of 2020.

On the graphic below, which explains the change in our first quarter '21 margins with clients versus the fourth quarter of '20, we see the effect of higher margins on commercial loans as well as on deposits. Those positive contributions were offset by a change in credit portfolio mix. Mainly due to the contraction of the consumer portfolio as a result of the pandemic as well as by a reduction in average loan volumes.

Moving on to Slide 10. We show that our financial margins with the market was CLP 60.5 billion in the first quarter, about CLP 21 billion higher than that of the fourth quarter of 2020 despite a lower exposure to the U.S. a decrease in CLP 500 billion and a lower inflation. Revenues were high across our trading and banking businesses despite a 45% reduction in inflation exposure since the third quarter of last year.

Here on Slide 11, we can see our main credit risk indicators in Chile. Cost of credit in the first quarter was CLP 24.8 billion, which corresponds to 0.5% of our average loan portfolio. We are seeing a quite benign credit risk across our portfolio. In retail, the NPLs of the retail and consumer credits that did not receive any payment relief are below mid-2019 levels. That is pre pandemic and pre social unrest. The credits that did not -- that did receive payment relief are in all repayment now and performing better than expected.

In wholesale, we did have 1 corporate case rolling into NPL. But it was already adequately provisioned, so we did not have any significant impact on P&L. The movements that you see in commercial NPLs, total NPLs and NPL coverage are mostly explained by that 1 case, and therefore, do not reflect overall portfolio trends. As a result of the provisions we established in 2020, our NPL coverage ratio remains very high in historical terms despite the decrease shown in this quarter. Our coverage evolution quarter-over-quarter is consistent with our expected loss provisioning model, which allow us to be ahead of the NPL cycle while maintaining high levels of protection through the site.

As for our perspective for the year, we are trying training towards the low end of the range we provided as guidance for cost of credit, which was between 1% and 1.3%. On Slide 12, we show noninterest expenses for the quarter, which had remained very much under control, decreasing 0.4% quarter-over-quarter while the efficiency ratio improved by 5 percentage points. Despite the above inflation increasing costs year-over-year, which resulted mainly from the fact that on the first quarter 2020 was positively affected by reversal of variable compensation provisions. We maintain our guidance of a cost growth below inflation for 2021.

Now moving on to Slide 13, we show that our liquidity provisions remains very strong. With both LCR and NSFR at historically high levels since 2020, boosted in part by government liquidity support measures.

In Slide 14, we can see that Colombia as well had a positive impact on the quarter, reaching an 8.2% managerial return over tangible equity. Operating trends were positive as well, with 3% quarter-on-quarter loan growth, a rebound in operation revenues and a normalization of cost of credit, at significantly lower costs.

On Slide 15, we see our fully loaded CET1 capital ratio increased by 50 basis points year-over-year and 20 basis points quarter-over-quarter. We expect our capital ratios to improve steadily going forward as our profitability recovers, and we continue to advance in our capital efficiency efforts.

As I mentioned in the last call, we are discussing internally at the highest levels, how best to address our capitalization ratios going forward, considering our upcoming acquisition of additional interest in Itaú CorpBanca Colombia as well as the rolling of Basel III. We will make the relevant disclosures of information as it becomes available.

Let's move on to the next part of the presentation. On Slide 17, I will recap our evolution in the last 12-month period. And on the following slides, I will share the progress that we have made so far. When facing a crisis scenario -- of a scenario never seen before in March 2020, our adaptation and management capabilities were tested.

Our robust governance and solid risk management allow us to continue to run the bank for under those challenging circumstances. As you know, we promptly organize our operations and prepare the bank for the crisis.

We acted quickly to ensure our customers have appropriate remote access to the bank, while at the same time, developing solutions needed for that period. It was a time of taking care of our people, our customers and the bank and we're fully focused on that.

From September 2020 onwards, we began to shift our focus to building the bank of the future, leveraging what we learn and develop during the crisis. In the months that follow, we developed our transformation plan based on the pillars of a strategic focus on disruption, customer centricity, simplicity in digitization in an agile working model and a disciplined approach to achieving sustainable results.

If we can please move to Slide 18. Before sharing some of the advances in the strategy, I would like to first to introduce our new organizational structure.

We made important change to our executive committee to ensure that we have the right structure and the right talent with the necessary skill set to lead this transformation process.

The most relevant structural changes are: one, we created a digital business development in management division. Which is in charge of our transformation overall as well as the most innovative elements of our plan. And to the decentralization of our operations, which was key to reinforce customer centricity and agility.

In addition to structural changes, we also brought over new heads of technology and the -- for the wholesale bank.

On Slide 19, we introduced Eduardo as the new Head of IT, who has been working with us since April; and Sebastian Romero as Head of the Wholesale Banking, replacing Christian Power, who will with us in September. Both Eduardo and Sebastian, our top executives with the experience in the industry and strong track records, as you can see in their mini bios on this page.

On Slide 20, I would like to reintroduce Jorge Novis as the Head of our new Digital Business Development division. Jorge has been with us for a few years now.

Lastly, as Head of Operations. Previously, he led several business transformation programs at Itaú CorpBanca. Which takes him -- gave him Gavin relevant experience in mazing the best person to lead the transformation office we have created to implement our new strategy.

The transformation office will coordinate and oversee the transformation process, supported by dedicated IT, finance and HR sales and working closely with each of the work stream leaders and teams. It is worth mentioning that this structure and the overall methodology, we are following to implement the transformation has been successfully deployed in Itaú CorpBanca as well as in other banks and companies in different regions.

After describing how we are setting ourselves to deliver the transformation plan, I will now comment on the progress we have already made over the last few months, starting on Slide 21.

The we recently announced a strategic alliance with Rappi, a leading digital player in Latin America through which we seek to bring innovative and disruptive ways of providing financial services to both individuals and companies in Chile.

Through this partnership, we are integrating financial services into a large ecosystem, which enabled us to assess a large customer base to boost our growth while adding value to the ecosystem. We expect to launch the first products of our partnerships on the third quarter of this year.

Our journey of customer experience transformation, we have made significant progress over the last year, as you can see on the left-hand side of Slide 22.

Having said that, we are not at all satisfied as we regard the low NPS of the banking industry in general, Chile as a clear opportunity for us to disrupt the market.

On the digital front, we have made huge progress with our new app, which is now ranked #1 in Chile in the 3 major App stores.

As you might recall, in the fourth quarter 2020, we launched a digital wallet that allows payments in smartphones and smart watches making them easier and safer as well as offering both Visa and Mastercard options for our clients. 3 months later, we have seen an increasing adoption of this functionality.

As a few weeks ago, we launched the Cuenta Invierte+ checking account, which enables quick and easy access to our open investment platform through a 100% digital platform with a hassle-free onboarding.

On Slide 23, we present our innovative organization model with a client. We are moving towards an agile working model at scale with full integration across all areas. The first step on this journey is integrating business and technology in joint teams pursuing business objectives broken down into 3 months sprint.

This migration towards an agile operation model allow us to simplify the organization structure in the fore, accelerate decision-making through empowered multidisciplinary teams.

This year, we also have been recognized for our excellence in key areas. For example, the best trade finance provider by global finance and banking, best asset management in fixed income by Morningstar and the deal of the year by IFR awards for our role in the emission of the Peruvian government.

Wrapping up, we started 2021 strong, which is just the first step on the journey to achieving the sustainable results. We are fully conscious that much remains to be done. And that is why we are in full transformation mode to achieve our medium- to long-term performance aspirations.

With this, we conclude the presentation part we have for you today, and we would gladly take any questions that you might have.

[Operator]

[Operator Instructions] Your first question is from the line of Jason Mollin from Scotia Bank.

[Jason Mollin, analyst]

Gabriel, Labriola. My first question is just on overall profitability. You highlighted the trend in cost of risk. And the strong trading, and we have some guidance for the full year. I'm just trying to get a sense if we kind of normalize the provisions and normalized trading, I mean, I think and use some kind of 20% tax rate around there.

It seems to me that your return on equities are showing almost 21% is pretty impressive. But it's -- when we normalize, we would be at probably half that level or even slightly below. And I just wanted to get a sense if that -- if I'm thinking about that right for the rest of the year.

And then on -- my second question is related to your agreement with Rappi is this an exclusive agreement? I think you talked about some terms. I think there's some period through which it may be. But if you can talk a little bit on how that's going to work.

[Gabriel De Moura, executive]

Sure. Thank you for your question, Jason. As you mentioned in this -- your first question, I don't think that we are seeing that we are going to have a 25% return on tangible equity in the operation in Chile on a sustainable basis. I think it was a very good quarter in terms of financial margins with the market. As well with a cost of credit below what we thought we might have for this year.

But as I previously mentioned, we do see a lot of potential for the asset that we have in Chile. I think that the guidance that we had for long-term cost of credit was something around 0.8%.

As you remember, we always discussed this number as a business as usual sustainable cost of credit, given our mix of portfolio. The number that we saw was 0.5%.

As a matter of fact, if you take the numbers for Itaú Chile CorpBanca on a separate basis between 2012 and in 2015, I think that you're going to have an average of 0.5%. So it's nothing that new. Of course, we didn't expect for this credit cycle.

So I would say if we normalize this and normalize the financial margins with the market, we will encounter a lower return on tangible equity. Having said that, I'm quite optimistic with the year that we have. We are seeing good results. In terms of spreads, we were able to increase the spreads that we have on the wholesale portfolio.

We still have some challenges on the consumer portfolio. And as I mentioned before, when I think about the potential of return on tangible equity for our operation in Chile, I think 16% is something achievable from what I see here in the projections that we have.

So we don't have any specific guidance for the year. But I'm hoping for better numbers than the ones that you mentioned for the return that we have for this year. And we hope for better returns approaching the 15%, 16% return on tangible equity on a sustainable basis for the bank. Please, this is the plan that we have.

For Rappi, we have negotiated for 6 months with Simon Borrero, who is the CEO, with Rappi globally for this joint venture that we have with them, we have exclusivity over the application of Rappi for the distribution of financial services.

Both for the clients that Rappi has, it has over 1 million clients in Chile as well as on the company side for all the providers that Rappi has of companies that are selling these services to move through the platform.

We also have [indiscernible] for the distribution of financial services. It's a new model. We -- if you take our experience in Itaú CorpBanca of doing partnerships with retailers. We were quite successful in achieving that. We are developing this model with Chile with Rappi.

So I think there are good opportunities for us with all the flow of clients that they have incorporating a new attraction model for the bank. As well as to learn more from a company that has been widely successful in developing its digital model to our Latin America to learn from them and apply what we learn into our business. That's at least the ambition that we have for Rappi.

[Operator]

Your next question is from Sebastián from CreditCorp Capital.

[Sebastian Gallego, analyst]

Gabriel. Claudia and the rest of the team, Rodrigo. Thank you for the presentation. I have several questions today.

The first one, on capital. Gabriel, you mentioned during the presentation that the new information will be disclosed when it is available.

The key question here is, what are your initial thoughts considering the recovery of profitability, the potential needs that the bank may have and when do you expect to be -- to have these disclosures for the market. That will be the initial question.

The second question is regarding overall profitability, going back to the question of Jason. Because you talk a lot about how the sustainable return on tangible equity will be between 15% to 16% in Chile. But you continue to fail to talk about consolidated profitability and talk about the picture in Colombia.

So my specific question here would be what are the trends that you're looking at on a consolidated basis for profitability? And what's the outlook, including that from a strategic point of view, in Colombia, also considering recent challenges at the fiscal front?

And the third question will be -- we saw minor impairment on the managerial result and I'm wondering if you could expand on that impairment charge that you made during the quarter, then if we should expect new impairments throughout the year?

[Gabriel De Moura, executive]

Sure. Thank you for your question, Sebastián. First on capital, as I mentioned in the previous call, when we take a look at the first plan that we have of doing all the convergence to Basel III with generating and retaining capital prior to 2025.

I think that plan was mostly affected by the effects that we saw in 20 -- 2019 -- 2019, I'm sorry, due to the social unrest in Chile and the cost of private level that interior.

And of course, with the dividend payments that we had of a dividend payout of 100% in the past as well as all the pandemic adjustments that we did in the portfolio last year.

So taking the time that went through and taking our way to generate and retain capital during those years. I think that the plan has to change. And this is the discussion that we now have with the Board and with controlling shareholder in terms of the capital structure that we have in the bank and how we will converge through time.

We do not have any specific information to share with you right now regarding timing and also amounts of an eventual capitalization of the bank. But I can tell you that we will have new information this year to share with you.

This -- your second question was about overall profitability. When you take a look at Chile, the answer is the same that I do to Jason.

When I take a look at Colombia, I think things are more challenging in Colombia, as you saw, we had a dilution of basically 3 or 4 percentage points in Colombia that's coming from 25, if I'm coming out of 16, for instance, the potential dilution will be lower than that, something around 2%, as I mentioned previously in previous calls.

I think it has been challenging in Colombia because we were affected in our go-to-market strategy as things also become more complicated in Colombia. Especially because of the pandemic.

I still think that it's possible for the Colombian business to converge to its cost of equity around 12%, and we had an 8% return on the first quarter, which I think then again, not different from Chile.

I think that we're probably going to see a lower return in Colombia than 8% for this year. I don't think that Colombia will dilute more than 2%, but we are now discussing what are the options that we have to increase our shareholders' equity value creation for the business in Colombia.

And I think that the base answer that we have so far is focusing more the bank in some specific segments, and we're going to share this with you this year as well.

For the impact of the environment, I think there will be a good idea if Rodrigo can discuss this with you. Rodrigo?

[Rodrigo Couto, executive]

Yes. Sebastián. So we had 2 things in our nonrecurring results. One is the amortization of the intangibles generated through business combinations.

That's a treatment that we have every quarter, so there's nothing new there. And I can tell you that there was no impairment, either goodwill or of intangibles to business combinations, okay?

So the only thing there was, there was the regular amortization of these combinations. Impairment that we did have, which is like CLP 1.3 billion was related to some technology assets, related to the assistance consolidation.

You might remember, we did a larger impairment in December. And these are some -- some residual impairment of technology assets. We do not expect any major impairment going forward.

Having said that, we review our intangible assets, and we also review our fixed assets continuously, and we might have some small movements throughout the year.

[Operator]

[Operator Instructions]

Your last question is from the line of Jorg Friedemann from Citibank.

[Jorg Friedemann, analyst]

So I'd like to try to get a bit more color about your expectations on the revenue front. I think it was very clear already from the comments of Gabriel, what to expect in terms of upcoming profitability for the year.

But just to get a bit more sense about how to get there. If you could, Gabriel, remind us, what are the trends that support your ALM results because even though everybody makes a call on how unsustainable these numbers might be.

I also noticed that last quarter, it was strong. This quarter, it was strong. And I think it might be associated to ALM given levels of rates or something else. So if you could help us through understanding what has sustained these levels of NII with the market, that would be helpful. This is the first question.

And the second question, but also focusing on revenue generation, if you could give us some ideas about what are the trends expected for fee income? One of your competitors last week released the guidance, expecting 8% to 10% increase of income throughout the year as the reopening takes place and activity increases. Is this a trend that we could also expect for the other banks in the banking system?

[Gabriel De Moura, executive]

Sure. Thank you for your question, Jorg. I think that when I take a look at over the next few years, I think that revenue generation will be key in order achievement to maintain the levels of results that I mentioned before.

Through this year, I think that we are still going to be a little bit shy than the long-term projections that we have on revenues, mainly because of 2 things. We still see at least on the first semester, of this year, a little bit shy the volumes, especially on the consumer front. We saw some resilience on the mortgages portfolio, as you saw, we are increasing 8% year-over-year. It was a market that is more resilient and have a higher latency in terms of being affected by economic downturn.

On the other hand, we were able to -- if you take a look at how interest rates have fallen for the past few years and the resiliency that we had on spreads I think it was quite good, especially on the wholesale part of the portfolio.

As you mentioned, I -- we were very focused on making sure that we are increasing the value creation of the credits that we are in. We are able also to maintain or expand the spreads that we have on the retail side.

But of course, if you take a look at the portfolio as a whole, in terms of the mix, it was affected as we are decreasing less than the market, but truly decreasing the consumer portfolio as all the effects of the pandemic. If you take a look at the fees, as you mentioned, I mean, growing now fees by 8% from the fall that we have last year. I think it's something feasible, but it has to do more with the starting base that we have then compared to the numbers that we had in 2019. And I think that comment goes as well for the industry.

You have to remember that in Chile, not like Brazil, which the fees are more on the service side, the fees in Chile, especially in our case, are more linked to credit concession in terms of the insurance products that we have, in terms of the fees that we charge for restructuring credits on the wholesale.

So as we see on the second semester, a better activity on credit concessions, I do see a rebound in fees. And I think that the numbers that you mentioned are very reasonable for the year that we have. But the main drivers that we are seeing in terms of the profitability for this year, is growing the revenues that we have, I'm sorry.

But I see the normalization of our cost of credit and a strong cost control. I think that for this year, I think that will be the main highlight for the bank as you saw, we are doing well in treasury. We are the first bank, for instance, in Chile for FX trading, for our clients and also for derivatives.

So we do see a strong treasury in terms of the activity with clients, and you see those numbers.

But then again, I think that converging to the bottom or perhaps better than the bottom of the guidance that we issued for cost of credit, it's a strong driver.

I don't feel that if we are at the bottom of the range or even lower than the range that we provided the cost of credit is something that it's not sustainable for the bank.

As I mentioned several times before, what I do see as a cost of credit on a business as usual situation for the bank is something around 0.8%. So converging on that strong cost efficiency and growing revenue steadily for the next few years. I think that we will converge the profitability to what we mentioned before. I don't know if I answer your question, Jorg.

[Jorg Friedemann, analyst]

You actually answered even more than what was questioned, and I really appreciate the color. But if you could just touch base once again, on NII with the market.

So what are really the trends we should monitor to understand the levels of these results or whether we should expect already for the coming quarters, a reversion to the mean, which was over the last year, something around CLP 25 billion per quarter.

[Gabriel De Moura, executive]

Yes. What probably we are going to see are lower returns on treasury, I don't think that we can repeat the partner that we have sustainably going forward. I do see good results for the next quarter, but then again, maintaining the level of profitability, financial margins with the market, I think, would be tough. But I do see reactivation of volumes in other fronts.

So I think that we will not fully compensate the lower return on the financial margins with the market throughout the year. With financial margins with clients. That takes a little bit of timing. But then again, as I mentioned, with the FOGAPE loans that we put forward that we have a good guarantee and I think that we were able to put forward a good portfolio on SMEs.

The level of profitability that we have for our deposits. If you take a look at deposits year-over-year, at retail, we rose almost 70% our current account deposits.

So those operational trends, they are quite good. But then again, I think that what we are going to see on the first semester of the year is more a market-dominant return in what we are going to see on the second semester is more a client dominated return.

And I think I like better the second one because it's more sustainable to go out time. Even though if you take a look at the results that we have in treasury, for the last few years, they are quite good and sustainable.

So I think that for to achieve the level of returns that we are talking about for this year. Probably it's going to be more concentrated on second semester in terms of the growth of the portfolio to the mid-single digits that we have talked about within the guidance. If you take our guidance, and if you put it forward, probably you will rise in the returns that we are talking about.

[Operator]

There are no further questions. Claudia, please go ahead.

[Claudia Montevecchi, executive]

Hello. We have 2 questions from the console that we will answer now. So the first question coming from Florencia Stefani with LarrainVial. Florencia said, Gabriel, could you give us some guidance about the net income for this year and the evolution in coming years?

[Gabriel De Moura, executive]

Okay. I think it is similar to the discussion that we have on the previous answers. But I think it gives me the opportunity of making something clear. I don't think that we are saying that we do believe that for the Chilean operation, even for the consolidated return of 20-plus something percent it's something that is sustainable, taking a look at the future of the bank.

In the same way, I think it's reasonable to say that the results that we went through on the last few years, given all the adjustments that we needed to do in the portfolio, do not fully represent the potential value that we have for the bank.

So I think it's important to take a look at the balance of both things because it's easy to somehow disconstruct the results that we are having this quarter. But it's also important to take a look at the context of the results that we have in the past.

Seeing the big picture as we always mentioned, I think for the Chilean operation, we can clearly see a result sustainable between 15% and 16% of return on tangible equity. It's true that we have still to sold the Colombia operation.

As I mentioned also before, we think that the Colombian operation is at least 2 years behind what we did in Chile. I still think it's possible for the Colombian operation to converge to a return on tangible equity around 12%, which is the cost of equity that we have signed to Colombia.

And given that the dilution especially because we have less than -- around 20% of the assets on the Colombia operation will be less than 2% on the overall picture. I think it's important to see through the cycle. In the same way that we were optimistic, taking a look at the future, when we did all the adjustments that was necessary for the bank during the pandemic and before the pandemic mainly on the cost of credit, I think it's impossible -- I think it's possible and reasonable to have the same expectation that we have right now.

So I do feel that we have a strong asset, I do feel that it's possible to achieve the results that we're seeing. And I do feel that the transformation process that we are going through will give strong base for this bank to continue to grow and maintain those levels throughout the future.

[Claudia Montevecchi, executive]

Thank you, Gabriel. We have 1 last question today coming from Felipe Torres at [indiscernible]. Felipe says, could you give us some guidance regarding loan growth, cost of risk, NIM and net income regarding the Colombian operation?

[Gabriel De Moura, executive]

Felipe. We do not disclose guidance for the Colombian operation because we are still stabilizing in the operation as we mentioned before. It's hard for us to come up with some numbers for Colombia, given all the volatility that the bank has and also the volatility of the market.

Having said that, I think that the Colombian operation is experiencing the same effects that we saw in Chile that all the work that was done throughout the past few years are generating results.

So in terms of the credit losses that we have, it's much more stable given all the provisions that we did last year. And the years before that as well, when you take a look at expenses, we were able to grow expenses less than inflation and less than the market. So those are 2 comments for cost of credit and also for expenses.

I think that the main volatility that we have is for income I think that we had a portfolio that didn't perform in terms of the commercial performance as we would like, then again, I think that works in our favor in this moment that I think that the relationship between risk and return is more opaque during the pandemic.

So we didn't grow 25% the commercial portfolio, as we saw some banks growing in Colombia in 2019. I think that's weighted in our favor. And we also went out of some portfolios that we thought had higher risk.

So we were able to adjust the bank in terms of its balance sheet in terms of its operational value. And now we have to construct over this.

As we mentioned, we are thinking about how to better tackle this. Probably the strategy that we had, which was a strategy based on being a universal bank for all segments in Colombia is a strategy that is very difficult to implement, given the scale that we have. And we would like more to focus on our operation in some specific segments.

Having said that, I think that's something that we can discuss a few months in the future as we work out the plan that we have.

[Claudia Montevecchi, executive]

This was our last question, Gabriel. So I think that you can make final remarks.

[Gabriel De Moura, executive]

Brilliant. Thank you so much for your participation and for the questions that you have. As always, Rodrigo, Claudia and I are always available for you.

I'm very positive with the year that we have looking forward. And also with all the changes that we are doing with the bank, I think that it's a beginning of a new chapter in our history. And we will keep you updated as we move along. Thank you very much.

[Operator]

And with that, this concludes today's conference call. Thank you for attending. You may now disconnect. Presenters, please stand by.