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Banco Itau Chile
SGO:ITAUCL

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Banco Itau Chile
SGO:ITAUCL
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Earnings Call Analysis

Q2-2024 Analysis
Banco Itau Chile

Banco ItaĂş Chile's Positive Q2 2024 Performance and Strategic Shifts

Banco ItaĂş Chile reported a strong performance in Q2 2024, maintaining returns within the 14-16% target range despite high credit costs. The growth was driven by stellar investment fund performance, notable M&A deals like Arauco-Klabin, and robust digital initiatives. The company highlighted its ESG progress and announced Andre Gailey as the new CEO from October 2024. With continued focus on customer relationships, operational efficiency, and digital transformation, the bank is poised for sustained growth, particularly in corporate investment and affluent market segments in Colombia.

Economic Context and Performance Overview

In the second quarter of 2024, Banco ItaĂş Chile reported a recurring net income of CLP 99.4 billion, reflecting a slight decline of 3.7% from the previous quarter and a significant drop of 32.8% compared to the same period in 2023. This downturn is attributed to a high comparative base last year, which included substantial income from an alliance with the insurance company Cardif. The figures in Chile demonstrated even more pronounced decreases, with a net income of CLP 99.1 billion, resulting in a quarter-on-quarter decline of 6.8% and a year-over-year plunge of 34.6%, indicating challenging market dynamics affected by financial margins and credit costs.

Profitability and Financial Margins

The consolidated return on tangible equity (ROTE) for the bank reached 11.9%, down 0.7 percentage points from the previous quarter and showing a stark decline of 8.4 percentage points year-over-year. In Chile, specifically, ROTE maintained a level of 15.2%, indicating some resilience amidst the pressures. The consolidated financial margin with clients reached CLP 344.9 billion, growing 7.8% year-over-year, primarily driven by the increase in the liability portfolio. However, the financial margins with the market in Chile experienced a substantial decrease of 34.1% compared to the same quarter of 2023, underscored by lower gains from fixed income instruments.

Cost of Credit and Credit Portfolio Management

The cost of credit rose significantly by 36.6% year-over-year to reach CLP 78.4 billion, reflecting a challenging environment characterized by higher loan loss provisions and a stabilization in consumer credit. The bank managed to maintain a stable cost of credit ratio to loans in Chile, positioned within the guidance range. Regarding the credit portfolio, Chile's loan portfolio experienced a modest increase of 0.7% from the previous quarter and 3% compared to the same quarter last year, primarily driven by retail mortgage loans.

Operational Efficiency and Non-Interest Expenses

In terms of operational efficiency, the bank maintained an efficiency ratio of 42.7%, which is favorable compared to industry averages. Non-interest expenses observed an increase of 4% quarter-on-quarter and 0.7% year-over-year, amounting to CLP 133.5 billion. Personnel expenses increased slightly due to seasonal effects, though they decreased from last year, reflecting a stable management of operational costs.

Strategic Direction and Future Guidance

Looking ahead, the management indicated cautious optimism for growth, particularly with upcoming investments projected to enhance loan demand in the latter half of 2024 and into 2025. The bank aims to retain a ROTE target of 14%-16%, aiming for a gradual normalization of credit costs and improved margins as the economic environment stabilizes. The bank aims to adapt its strategy in Colombia, focusing more on corporate investment banking, anticipating gradual improvements in profitability despite the challenging market conditions.

Leadership Transition

As a significant change, Mr. André Gailey has been appointed as the new Chief Executive Officer, effective October 1, 2024. He brings over 20 years of experience within Itaú and is expected to guide the bank through the next growth phase and implement strategic initiatives for continued market leadership.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Banco ItaĂş Chile Second Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today, Ms. Claudia Labbe, Head of Investor Relations. Please go ahead.

C
Claudia Montevecchi
executive

Good morning. Thank you for joining our conference call of our second quarter 2024. I would like to remind you that our remarks may include forward-looking information, and our actual results could differ materially from what is discussed in this presentation. 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 apply managerial criteria to disclose our income statement.

Please [ remind ] that since the second quarter 2019, we are presenting our income statement in the same manner as we do internally. 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 presenting our results will give you a clearer and better view of our performance from this different perspective. Please refer to Pages 16 to 18 of our report for further details.

Now Mr. Moura will continue with the presentation.

G
Gabriel De Moura
executive

Thank you, Claudia. Good morning, everyone. Thank you for joining us for the second quarter 2024 conference call. As usual, we will update you on our progress in implementing our strategy as well as present the highlights of our second quarter results. On Slide 2, I would like to recap our strategic levers which we presented in the last call. They are organized along 4 pillars.

The first pillar is Customer Relationship comprising of client satisfaction, principality and brand. The second pillar is Product-Market Fit, containing the growth and digital distribution levers. The third strategic pillar for us is Operational Efficiency encompassing efficiency in operating cost, competitive funding, cost of credit and financial capabilities. The fourth pillar contains our Key Capabilities, including IT enablers, security, data and artificial intelligence application, culture and talent.

The highlights in development that you will see in the next slides are organized around this framework. On Slide 3, we present the progress of our investment business which has sustained the trend of market-leading growth and market share increase. Our growth has been supported by the performance of our funds, which won the SalmĂłn Award for best performance in 2 categories and by our advisor model, which has achieved an NPS of 78 and continued with triple-digit growth in assets under management.

On Slide 4, we show some of the investment banking transactions in which we participated this year. We have leveraged our regional presence to serve clients in cross-border transactions, such as the deals between [indiscernible] Arauco from Chile and Klabin from Brazil and the sale of ILAP to ColbĂşn. In a short period of time, we have been able to achieve a strong position in investment banking, as you can see by our position in rankings over the last 18 months.

In M&A, we participated in 5 deals totaling $2.2 billion, achieving the third place in the ranking. In equity capital markets, we were ranked #2 with 2 deals amounting to $279 million. In Debt Capital Markets, we achieved second place in local transactions which totaled the equivalent of $1 billion as well as the fifth place in international placements, which amounted to $1.9 billion. Our reputation with clients and investors has also been enhanced by the quality of our macroeconomic analysis in equity research teams, which have been recognized by institutional investors as the best in Chile.

On Slide 5, we show some of our technology initiatives to improve customer relationship management, customer experience and connectivity as well as product development. In our ItaĂş X Lab, we are developing a customer relationship management platform to improve effective business in targeting of our offering by using data and AI to better understand customer needs as well as to enhance risk management and security.

We are also introducing a new digital platform to improve customer experience and facilitate transactions with corporate clients. On the other hand, we are working in partnership with Amazon Web Services to rethink the way that we develop digital products, incorporating the latest technology and to create a truly game-changing product and experiences.

We turn now to Slide 6, where we show some of the key developments and results in our ESG culture and talent strategies. On our sustainable path, we show that we have achieved 100% coverage in measuring our financed carbon emissions on the wholesale portfolio, providing transparency on our climate ambition to be net zero carbon emission bank by 2050. We have adopted the methodology issued by the Partnership for Carbon Accounting Finance, the PCAF, the first global standard for measuring emissions from loans and investments in order to calculate and disclose the financial emissions in a way that is aligned with the best practices for transparency and data standardization.

This core measure is the quality of the information used for the calculation of our financed emissions. The better the availability of the information provided by our clients, the better our score. According to this methodology, our PCAF score improved by 6% in 2023 versus what we have achieved in 2022. In the culture and talent front, our e-NPS, the Net Promoter Score of our employees continued to improve to 81%.

We value the diversity of our [ ItaĂşbers ], and we are very proud to have been recognized by the human rights campaign jointly with Pride Connection in Fundacion Iguales in Chile, one of the best places to work for the LGBTI+ talent based on the corporate equity index, which certified leading companies in LGBTI+ inclusion in equity. We are also proud to have been recognized by First Job as one of the best companies for interns in Chile in 2024, being ranked in the first place among banks and in tenth place in the general ranking.

On Slide 7, we present the evolution of our macroeconomic environment in Chile as well as the loan and deposits of our banking system. Inflation rebounded a bit in the second quarter with the variation of the U.S. reaching 1.3% versus 0.8% in the prior quarter. The monetary policy rate continued its downward trajectory, reaching 5.75% after June's 25 basis points rate cuts. The dollar fell back to CLP 943 from the level of CLP 981 observed in the first quarter. Banking industry loan growth remained relatively low at around 4%. And [ with ] time deposits grew 4.9% and demand deposits continue the recovery and growth 3.1%.

Now moving on to the highlights of Slide 8. You can see that we have maintained consistency in terms of returns, achieving a quarterly return on tangible equity in Chile of 15.2%.

At the bottom left side of the page, we show that the share of our income from fees, deposits and other activities not related to credit and market risk has recovered this quarter to 28.1%. This is an important indicator of our progress in cross-selling and generating income from activities with low capital consumption which is the key driver for our shareholder value creation.

Along the same line, we look at the chart on the top right side of the page. We can see that the ratio between deposits plus assets under management in relation to the total loans have been steadily increasing, which demonstrates our enhanced ability of attracting customer deposits and investments. In terms of efficiency, we kept our efficiency ratio at 42.7% in the quarter, which is better than the average of the industry in the period and in line with the average of the prior quarters, as you can see on the bottom right side of the page.

Now moving forward to Slide 9. We present our financial highlights for the second quarter of 2024. In the second quarter of the year, recurring net income totaled CLP 99.4 billion, a decrease of 3.7% compared to the previous quarter due to our results and in financial margins with the market mainly in Chile and an increase in cost of credit. Compared to the same period in 2023, a decrease of 32.8% was observed relative to the high base of the second quarter of '23, which has been positively influenced by the upfront income fee received because of our alliance with the insurance company, Cardif.

Net income in Chile was CLP 99.1 billion, decreasing by 6.8% quarter-on-quarter and 34.6% year-over-year, again, relative to the high base that we have experienced last year on the second quarter. The consolidated return on tangible equity reached 11.9%, showing a reduction of 0.7 percentage points quarter-on-quarter and a reduction of 8.4 percentage points year-over-year. Influenced by the lower generation of revenues in margins with the market observed in the second quarter of 2024 and again, the effects of the alliance with Cardif recognized in the same quarter of 2023.

However, it remains consistent with our average profitability observed since the second half of 2023. In Chile, the return on tangible equity has shown resilience maintaining our expected level of 15.2%. Consolidated financial margin with clients reached CLP 344.9 billion, a 7.8% increase year-over-year mainly driven by growth of the liability portfolio, demand and time deposits and improved in our client derivative activity in Chile, which partially offset the decrease observed in Colombia resulting from the decrease in our loan portfolio there.

Consolidated commissions and fees income totaled CLP 51.6 billion in the second quarter-on-quarter, showing an increase of 6% compared to the previous quarter and a decrease of 48.4% year-over-year. As noted the sharp decrease in the year-over-year comparison is mainly due to the result of the alliance with Cardif that we recognized on the second quarter of last year. Isolating for this effect, consolidated commissions and fees in the second quarter of 2024, grew by 31.3% relative to the second quarter of 2023.

The bank noninterest expenses presented a decrease of 5.5% compared to the previous quarter and an expansion of 12.1% compared to the same period of 2023. The increase is mainly explained by the appreciation of the Colombian peso as well as some cost growth in Colombia as the year-over-year increase in Chile was only 0.7%. The consolidated efficiency ratio was 48% in the second quarter of '24 with no significant variation compared to the index of the previous quarter in a 6.4 percentage point increase year-over-year, again negatively affected by the income of our insurance alliance in the second quarter of 2023.

In terms of cost of credit, in the second quarter of the year, an increase of 6.9% was observed, reaching CLP 102 billion mainly due to higher recoveries of written-off loans and income from the materialization of sales of goods received debt payments registered in Colombia in the previous quarter. However, I would like to note that our ratio of cost of credit to loans in Chile remains stable and within the range that we presented as our guidance.

When we look at our credit portfolio at the end of the second quarter 2024, the Chilean loan portfolio totaled CLP 22.9 billion, presenting a nominal increase of 0.7% compared to the previous quarter due to low activity in commercial and consumer loans. Compared to the same quarter of 2023, loans grew 3%, driven by the retail portfolio, mainly in mortgage loans.

As for Colombia, excluding the effect of the exchange rate variation at the end of the quarter of 2024, Colombia's loan portfolio grew by 1.2% compared to the previous quarter and had a 6% reduction in the 12-month comparison, reaching CLP 4.74 trillion.

Moving on to Slide 10. We can see the financial margins with client in Chile grew by 1.4% compared to the previous quarter, driven by a good performance of the liability portfolio, the growth in demand and time deposits and the improvement in client derivatives activity, which offset a decrease in capital margins caused by the reduction in interest rates.

Compared to the same quarter of 2023, financial margins with clients grew 5.6%, driven again by the improvement in its spreads of the loan portfolio, mainly in retail and greater activity in derivatives and FX transactions with clients, together with growth in the portfolio of demand and time deposits.

On Slide 11, we can see that in the second quarter of the year, financial margins with the market in Chile fell significantly relative to the previous quarter caused by the lower gains from fixed income instruments, which are related to the repayment of the FCIC Central Bank lines, partially offset by greater gains of UF readjustments. Compared to the second quarter of 2023, the financial margins with markets totaled a decrease of 34.1%, again, mainly driven by the repayment of FCIC lines.

Let's now look at Slide 12 in commissions and fees in Chile. In the second quarter of the year commissions and fees totaled CLP 43 billion, exceeding by 10.6% those observed in the previous quarter. The increase is mainly due to the financial advisory and others, which include credit card receipts and payments. There was also an increase in income related to our collection services. The 14.8% increase in assets under management fees in the quarter-over-quarter also stood out resulting from the 8% growth in assets under management in the period. It's also important to note, as mentioned before, that the comparison with the same period of 2023, we can see the effect of the recognition of one-off results derived from commercial alliance with Cardif in the decrease of 55.8% observed in commission and fees.

Isolating this effect, fees in the second quarter of '24 exceeded those recorded in the same day in 2023 by 17.6%. And as a result of improvement in credit card fees mentioned before, greater activity in instruction services, growth in the average assets under management portfolio and greater activity in ItaĂş corporate operations related to guarantees and letters of credit, movements that have offset the 35% decrease in current account services and overdraft fees.

On Slide 13, we see the evolution of cost of credit. In the second quarter, the cost of credit totaled CLP 78.4 billion, 2.3% lower than the expense observed in the previous quarter. Due to the higher recovery of loans written off as losses related to commercial portfolio operations associated with ItaĂş corporate and consumer portfolios managed by retail banking. On the other hand, the 3.2% increase in gross expense of provisions for credit losses observed in the last quarter is mainly explained by rating adjustments applied to the ItaĂş corporate portfolio during the first quarter of '24.

Compared to the second quarter of the previous year, the cost of credit rose by 36.6%. This increase is attributable to onetime reduction in provision expenses that occurred in the second quarter of '23, driven by changes in the commercial portfolio, such as loan maturities in early repayments as well as a decline in consumer loan defaults. Similarly, when we look at the same period, that was a notable the 65.2% increase in the recovery of loans previously [ reading ] office losses.

This improvement reflects a heightened emphasis on collections, which have become more significant given the prevailing trend of delinquencies affecting the loan industry. Our coverage ratio has been drifting back towards the pre-pandemic levels and NPLs that we have had provision had materialized. The ratio of net provisions remained at 1.4%, stable related to the last quarter. We expect to close the year around that level, which is within the target range that we provided as guidance in the beginning of the year.

On Slide 14, we can see that the second quarter 2024 noninterest expenses in Chile reached CLP 133.5 billion, an increase of 4% quarter-on-quarter and 0.7% year-on-year. Personnel expenses grew by 3.5% compared to the previous quarter due to seasonal effects that result in lower use of occasion provisions recorded in the quarter under an analysis.

Compared to the same quarter of 2023, personnel expenses decreased by 2.8% and as a result of the 7.2% increase in bank's head count level in 2023. Administrative expenses totaled CLP 57.8 billion in the second quarter of 2024. Exceeding the 4.7%, the expenses recognized in the previous quarter due to the increase in expenses related to leases. That increase is due to the timing effect that happened when the leases treated under IFRS 16 are renewed.

Compared to the second quarter of 2023, administrative expenses showed a slightly increase of 1.4% explained by higher commercial expenses and an increase in marketing associated with the rebranding and campaign sponsorship carried out in that context. Depreciation amortization impairment expenses totaled CLP 14.6 billion in the second quarter of 2024, with no significant variation compared to the previous quarter.

Depreciation, amortization and impairment expenses increased by 15% compared to the same period of the previous year, which is consistent with the growth in technology investments made in recent years. All in all, our efficiency ratio was 42.7% in the second quarter, remaining better than industry average in the quarter and in line with the average level of previous quarters.

On Slide 15, we show a recap of our [ loan ] volume growth during this period. The loan portfolio grew 2.9% in the last 12 months, while the industry grew by 4% mainly as a result of the slower growth than the market in the commercial portfolio, where due to low demand spreads have been compressed and we chose to be selective rather than aggressive in this environment.

The demand deposits we grew 5%, slightly faster than the industry growth of 4.9% in the last 12 months. When we look at demand deposits for companies and individuals, which are stickier than those of institutionals, we grew a lot faster in that market. In terms of demand deposits, we have significantly higher growth of 19.2% when compared to the industry 3.1% growth rates.

Finally, as already mentioned in this presentation, we had an 81.1% growth in assets under management in the last 12 months as June of 2023, which is twice as fast as the industry, 40.3% growth. That is to say we continued to grow assets under management faster than the market.

Moving to Slide 16. We show that we have increased our CET1 ratio during the last quarter, maintaining our capital levels within our peer group. During this period, we start the activation of the countercyclical buffer and Pillar 2 charges. As a result of the capital assessment conducted by the Chilean regulator, we do not have regulatory charges in Pillar 2 while some other peers do. Our liquidity ratios are also well positioned among peers and significantly above regulatory limits in line with our risk appetite and funding strategy. The decrease in the LCR ratio in the last quarter is mainly due to the normalization of this indicator once the total repayment of the FCIC alliance has been completed.

Let's move on to Slide 17 to take a look at Colombia. The economic backdrop of Colombia is challenging. However, after moderate growth in the first quarter of the year, activity improved at the beginning of the second quarter of 2024. Labor market dynamics also showed a surprising improvement with national employment rates falling by 0.2 percentage points year-over-year and employment rising by 1% from April.

Annual headline inflation stood at 7.18% in June, while annual core inflation decreased to 6.59%. So headline re-inflation remains high and that this inflationary process is gradual. In this context, the Bank of Republic maintained the pace of interest rate cuts at 50 basis points in June. An increase in the country's risk premium and consequent depreciation of the currency were observed in the quarter.

On the other hand, the pressure of fiscal accounts derived from weakness of revenues persists. Regarding the financial markets in Colombia, credit activities totaled [ COP 558.8 billion ], and the end of the May 2024, growing 0.6% compared to December 2023. And 1.1% compared to the same date in 2023. Reviewing the composition of the portfolio, the lower dynamism in consumer activity that decreased 1% compared to December '23 is maintained.

The commercial and mortgage loan portfolios had modest growth compared to the same months in previous years, 0.4 and 1.1, respectively. All-in credit demand has been low in a context of high interest rates.

On Slide 19, we can see that the bank in Colombia continues to maintain a positive return on equity and a robust capital and liquidity ratio in comparison to its peers, despite the challenging environment.

In terms of loan loss provisions, consumer credit has stabilized, but consumer credit has started to have impacts related mainly in the constructed sector. The latest signs point to it slightly improved in profitability in Colombia, but the environment remains difficult.

Lastly, as we already announced on July 5, our Board of Directors appointed Mr. André Gailey as the new Chief Executive Officer for the bank. Mr. Gailey has worked at Itaú for more than 20 years and currently served as a regional CEO for Argentina, Uruguay and Paraguay. Previously, Andre led the wholesale banking products area in Brazil, the client desk and wholesale banking and planning.

André Gailey also has a lot of degree from the University of São Paolo and a Masters in law and finance from the Stanford University as in an Executive MBA from INSPER in São Paolo. And that will commence his duties as the CEO of the bank effective on October 1, 2024. Until September 30, I will continue to serve my role as Chief Executive Officer for the bank. Then I will join the Executive Committee of Itaú Unibanco in the position of CFO of the group, as I mentioned before. Gailey has a strong background in commercial side of the business and has had a strong track record as the CEO of Itaú operations in other countries. So we are confident that he is the right person to lead the bank into a new cycle of growth. We will have a smooth transition and I will remain involved with the bank in Itaú as a Board member once it's formalized.

In this last slide, I would like to recap the key messages for this presentation that sums up the performance that we had in the second quarter.

We maintain returns within our target range of 14% to 16% in Chile despite the repayment of the FCIC lines and the level of cost of credit that was high relative to our long-run expectations. We saw progress in our principality strategy, mainly in the form of growth in assets under management and deposits. We continue to navigate the NPL cycles with levels of cost of credit and coverage within the expected ranges and with significant improvement in recovery.

We announced a transition to a new CEO that we continue the work that we had been developing in Chile for this operation to reach its full potential. As this is my last conference call, I will take the opportunity to thank you for your attention, support and constructive criticism over the years. I believe we made a lot of progress over the last years, things I took over right before the pandemic. And I'm sure that we will continue with André and our team going forward with this strategy for the bank.

With that, we conclude the presentation that we have for you today, and we'll gladly take any questions that you might have.

Operator

[Operator Instructions] The first question comes come from [ Ignacio Lanos ]. Can you explain the long-term strategy on Colombia.

G
Gabriel De Moura
executive

Yes, what we've been doing in Colombia is focusing the bank that we have there. As you know, we have a subscale bank in Colombia. And throughout time, we changed the strategy into being focused more on the corporate investment banking side of the business. I think that we have a wholesale business in Colombia that is profitable with good returns and with a lot of potential in the market.

We also have a treasury business, sales and trading business that we can lap regionally from what we have in Brazil, what we have in Chile and with other countries in Lat Am for our clients that operate regionally within the region. The last -- I think that the most challenge that we had was exactly on the retail part. At a certain point, we try to gain scale with the bank in Colombia in our retail operations.

And what we saw is with the changing digital, the level of effort that we had to put to change all the operations in retail to gain that scale would be longer than we wanted in terms of profitability. And that's why we are focusing more on the affluent market in Colombia, where I think that the assets that we now have within the bank can be competitive for that offer.

So I think that the long-term strategy for us in Colombia is -- nowadays, we have a banking that is subscale that have difficulties in returns. I'm pretty sure that in the last few years, we have a better bank than we had before, but with a more challenging market. That's why we cannot see the translation of the efforts that we put into the numbers so far. But I think that if we can -- if we continue to leverage our corporate investment business, our sales and trading business and focus our strategy within the affluent market in the retail in Colombia, I think that we can be better off than we are today and continue to develop the bank that we have.

It's always challenging to enter new markets especially within the economic cycle that we have. But I'm pretty positive with all the effort that we've put in with the team in Colombia in order to improve results. I don't think that will it be something that is overnight. We've been working for a few years, and I think there is a couple of years in front of us in terms of getting to the returns that we expect from the business. But I think that we are positive with the efforts that we're putting.

Operator

The next question comes from the line of [ Clemente Hedero ]. For this year what is the expected growth for the loans for the whole bank? May you [ segregate ] them between segments, please?

G
Gabriel De Moura
executive

I think that the discussion of growth has been a challenging one, I think, for the industry in Chile. I have mentioned this before, especially because I think that in different segments, you are having different impacts on the aggregate demand and also in risk capital. What we see in consumer loans is all the impacts after pandemic where we see NPLs going down, so NPLs are normalizing, in some cases, a little bit higher than what we see in pre-pandemic levels.

So I think that offer and demand will be especially low compared to million trends before because of high interest rates and especially because we are still stabilizing what is the credit cycle in consumer loans. I think that when we take a look at mortgages, they've been more resilient in terms of growth especially those are portfolios that are also very indexed to inflation. So in higher inflation, they had a higher carry.

So adjusting for that I think they have the same cycle of what we are seeing in other types of credit, especially as we have still high interest rates within the world. I think that we are normalizing this in Chile, but I think that demand will still be lower than the average that we had before.

In commercial side, I think that in terms of consumer and mortgages, they were -- this lower demand was were within our expectations for the year. I think that what we've been seeing in commercial, I think it's a little bit different. I think demand has been lower than we expected for the market. I think that investments are lower from the companies than we expected and also because of growth, the demand for loans as a company needs for their cash flow management has also been lower. As a result, we saw lower spreads in the market.

And at this point, we have decided to focus on having a more sustainable relationship of risk and return and not growing at prices that don't make sense for us. Moving forward, I think that we are more optimistic with the market. We have a guidance for growth that we expect to achieve. I think that the second semester will be better than the first semester.

And because of the investment cycles that we see for the next year, we are more positive also what we are seeing for 2025 in terms of growth compared to 2024. So it is a long answer because it's a complex discussion around growth because there are too many parts right now. But I think that we're still taking a look at what is the guidance that we have.

Operator

The next is a follow-up from [ Clemente Hedero ]. With these new CPI levels in Chile and having in mind the low growth for loans and the NPR that we have and will have for the next months, what is your expected or target ROE for the bank as a whole for this and next year?

G
Gabriel De Moura
executive

We are not, Clemente, issuing ROE targets from year-on-year. We have established one thing that we believe that the bank should operate with a return on tangible equities for the Chile operation between 14% and 16%. That's the guidance that we have. That's the potential that we have always discussed for the bank. When we take a look at all the conversations we have in the market in the past, they always -- when we were much higher than this, I always said that I expected the bank to be between 14% and 16%, especially after the capital increase that we did in the levels of capital that we now have.

And I continue to see the case that the bank has the potential to maintain returns between those levels. Of course, depending on the year, depending on the process, it's still, as you mentioned, the bank has affected for many macroeconomic variables, but we see the possibility of maintaining as a target, the return of the bank within those levels that I mentioned.

Operator

Question comes from the line Mr. Andres Soto from Santander.

A
Andres Soto
analyst

My question is related to the current environment in Chile. We saw the Central Bank yesterday surprising us not cutting rates any further and on the basis of higher for longer inflation. And typically, ItaĂş Chile has one of the banks that have not benefited from high inflation. So how do you see the current balance sheet structure in this context in which Chile apparently is going to have high inflation, high interest rates for longer.

G
Gabriel De Moura
executive

First, I think that we have been benefited by inflation. I don't see us within our benchmark as being one of the banks that were most positively affected by inflation. What I see in the macroeconomic environment, of course, there is a cycle of convergence to monetary policy in many countries. And of course, I think that the Central Bank in Chile is answering to a few factors.

One of them has been affected in many other countries is the monetary cycle in the United States. So all the indications that the Fed has at the end of the day create ceilings and floors in terms of how different countries and how different companies with open economies can react on their own monetary policy. The second effect, as we know, there is an open discussion about the effects of energy tariffs in Chile and what is the effect out of that in inflation. That creates some uncertainty around this scenario.

And the second one is economic activity as we saw the [indiscernible] today, activity was lower than expected. So there are many variables in play here that led to the decision that the Central Bank took. Within those environments, I think that we have prepared the bank in order to do its transition into a more normal macroeconomic scenario as we are leaving right now.

When I take a look at the bank, taking a look at scenario in the future, we are going to see a couple of things. I think that we are going to see inflation curve converge into the goals that the Central Bank has. We are going to see nominal interest rates going a little bit lower in Chile and in other countries. And on the flip side of that, if your point is that generates a lower impact on financial margins with the market, I agree with you. But the flip side to that discussion is also when I take a look at loan growth that I have and also cost of credit that I have, the loan growth should be higher and cost of credit should be lower.

So I think that we are still comfortable with the range targets that we have for return on equity based on different scenarios that we see going forward, normalizing what were former impact of inflation, of interest rates and as the world becomes more normal in terms of its impact after the macro effects on pandemic.

A
Andres Soto
analyst

That's very helpful and congratulations on your responsibilities and on the job that you have done with ItaĂş Chile.

Operator

[Operator Instructions] As there are no further questions at this time. This concludes the Q&A session. I would like to turn the floor back over to Mr. Gabriel de Moura for closing remarks. Please go ahead.

G
Gabriel De Moura
executive

Well, thank you so much for the conference call, as I mentioned within the call. Thank you for the support, for the feedback. I'm pretty positive with the team that we have in Chile, with the work that we still need to do in Chile and Colombia to consolidate the strategy that we have.

I'm confident with the leadership that André will bring to this team and with our execution capabilities. I will continue to follow the bank and the Board and thank you so much for the support that I had and the team had in the past few years. And we'll see you next time. Take care.

Operator

Ladies and gentleman, this concludes today's conference call. Thank you for your participation. You may now disconnect.