Banco Itau Chile

SGO:ITAUCL

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the Itau Corpbanca Q4 2021 Financial Results Conference Call and Webcast. [Operator Instructions] Thank you. Claudia Labbe, Investor Relations. You may begin your conference.

[Claudia Montevecchi, executive]

Thank you. Good morning. Thank you for joining our conference call for our fourth 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 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 these forms of communicating our results will give you a clearer and better view of our performance through this different perspective. 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 the progress of our strategy and 2021 fourth quarter results. Afterwards, we will be available for a question-and-answer session. [Operator Instructions] 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. Good morning, everyone. Thanks for joining us for today's conference. Today, we will present you the tangible progress we have been making in our transformation program as well as the highlights for our fourth quarter results.

As in our last few conference calls, I'll give you in Slide 3, some concrete examples of the progress we have made this quarter and along with the 5 pillars of our ongoing transformation. Let's start with the disruption and update on our half year [indiscernible].

After the [indiscernible] space, we are ready to launch RappiCard by Itau in March 2022. Just to recap, this credit card will have benefit in Rappi platform, no commissions and will be fully digital. Moreover, if clients want a physical card, we will deliver it within 1 hour in Santiago metropolitan area. In addition, customers will get cash back for any type of purchase in Rappi online in their favorite apps or in physical stores. It's a Visa credit card so it can be used anywhere around the world.

New functionalities will be incorporated throughout the year as we progress towards a comprehensive digital product offering. It's worth also noting that the Rappi customer base has grown significantly since we closed our alliance.

Our customer situation starting on Slide 5. Here you can see the first example of how our customer-centric approach to a product has led to strong NPS improvement and resulted in market-leading growth performance. We improved our digital offering and expanded to more customers while also developing new offerings, focusing on customer volume. As a result, our NPS nearly tripled and has growth in consumer credit card recovered in the fourth quarter. We started growing much faster than the market again with a 36% annualized growth rate in the fourth quarter. Over the last 4 years, our accumulated consumer portfolio growth has been 3x that of the overall market.

On Slide 6, we see a similar story for mortgages, where process digitalization and improvement in user friendliness have greatly improved customer experience and enable us to outgrow the market, which we have done at 1.1 to 1x over the last 2 years.

On Slide 7, we have an example of customer centricity for businesses from whom we also are creating digital products that are very user friendly. A signal of our customer satisfaction with our offering is that for the second consecutive year, Global Finance Magazine has chosen Itau web Portal Comex as the best Trade Finance solution in Chile. As we implement our giant working model, we will accelerate the pace at which we roll out new digital solutions for businesses over the coming months.

We now move to Slide 9, innovative third pillar of our strategy, simple and digital that was announced in the second quarter of 2021. During the fourth quarter of 2021, we have launched additional features for our web in line with our digital strategy, leveraging state-of-the-art technology used by leading companies. We have not only modernized the look and feel of our website but also implemented a contact manager that will enable us to update it much faster to keep it always fresh and add new functionality.

On Slide 10, we present some of the new features from our app, where we allowed new functionalities to manage investment as well as QR payment added last November. The continued evolution of our app has enabled us to maintain the lead in the ranking of the Apple, Google inquiry stores. The success of our app is a clear sign of the progress in our digital transformation as we work toward implementing our mobile-first service model.

Moving on to Slide 12, where we show our progress in implementing agile at scale. We started in March 2021 with the first 3 agile committees. As planned by the end of 2021, we have 500 staff internal and external working in the agile model. Our plan for the next year is to triple that number. of this test working in agile model to 1,500 people distributed across an increasing number of communities, which will cover all of our main products and services lines. The implementation of this agile at scale has been very important in increasing the speed of product innovation and adaptation to customer preferences, which has been a key driver for improving our NPS in growth.

Moving on to Page 13. On the talent attraction front. After the important changes we have made to our executive committee 1 year ago, we have recently attracted leading executives to key leadership positions. In wholesale, we have a new Head of Corporate Banking solutions, who is in charge of developing solutions and product innovation for all wholesale as well as a new Head of Corporate Investment Banking who will be focused on building our investment banking contracts.

In technology, we have a new Head of Agile who leads the development of our agile at scale model as well as a new divisional chief for IT offices who will work with the business in building new products and features to improve customer experience.

Finally, we have hired a new Head of Marketing from Google with extensive experience in digital marketing, who will help us accelerate our evolution in that area.

On Slide 15, we show that we are moving closer to our goal of being the fastest-growing bank in Chile. On this chart, we see loans in current account growth rankings. In the fourth quarter of 2021, we were the fastest-growing bank in commercial loans and the second in mortgages and consumer, which translates to second overall with an annualized growth rate of almost 20%. We are closing in on the podium in the growth rankings as well in total current accounts, having achieved the #3 position in current accounts for business.

Over the last 3 months, we have also been #1 in both consumer installment loans and credit cards, which is consistent with our strategy of pursuing faster growth in the U.K.

On Slide 16, as in every quarter, over 2 years now, I will talk about ESG, a fundamental pillar of our strategy and culture. This time, I will give you an overview of our progress in ESG across the businesses, corporate behavior, accountability and country development units.

Let's start with business dimension. By end year of 2021, 23% of our loan portfolio in Chile was compliant with the UN Sustainable Development Goals definition. We have also participated at joint bookrunner in 2 important bond issuances, a green bond from SAESA, a large electric company in Chile, and a social bond with the Ministry of Finance of Chile. We have also made progress in the corporate behavior dimension, significantly increasing both our customer and employee NPS in the context of our transformation program. In addition, we managed to reduce our carbon footprint by 7% compared to 2020, mainly due to our digital transformation, which allows customers to comfortably use our digital channels and also due to our remote first working model, which has avoided thousands of employee [ treats ], reducing emissions in time and in commuting. We also reduced our energy consumption by 17% and paper consumption by 31% relative to 2020 levels.

On the accountability front, we continue to be recognized as a component of several ESG indices, which have assessed our sustainability performance based on our publicly disclosed information. Thus, once again, we are an index component of the Dow Jones Sustainability Index MILA Pacific Alliance, being one of the 8 banks that make up that list.

In addition, for the second consecutive year, we are members of the S&P Global Sustainability Yearbook and continue to be part of the FTSE4Good.

Also in 2021, we were recognized for the fifth consecutive year as one of the Most Honored Company by institutional investors.

Also for the transparency purposes, we have carried out a due diligence on human rights, which allow us to identify risks and opportunities in our value creation chain and supplies.

To continue contributing to development of the country -- in the countries that we operate in, we have assessed more than 660 clients in socio environmental risks, opened account for more than 6,200 SMEs and trained more than 1,200 students from vulnerable schools with workshops on critical thinking, financial education, teamwork and use of technology.

Finally, since 2010, we have granted more than 305,000 student loans to our end clients, of which over 185,000 are currently part of our customer base.

Finally, I would like to highlight that we have renewed our commitment to the new and global tax and our asset management become an independent signature of the Principles to Responsible Investment in 2021, in line with our commitment to responsible investment.

Let's move on the next part of the presentation on Slide 17, where we present the financial highlights for the fourth quarter 2021.

Our consolidated net income was CLP 82.4 billion. Consolidated ROTE was 13.9%, and the return on tangible equity of our Chilean operations was 17.8% in this quarter.

When we look at our full year, we reached a consolidated net income of CLP 307 billion, which corresponds to a 15.7% return on tangible equity, while our return on tangible equity in Chile was 19.4%.

Consolidated financial margin with clients grew 25.2% year-over-year on the back of strong volume growth in Chile and a rising interest rate margin positively impacted by higher interest rates, while consolidated fee income grew by 4.3% year-over-year.

Noninterest expenses increased 7.8% year-on-year as a result of higher inflation and adjustments to provisions for variable compensation. Year-over-year growth in the income was much higher than in expenses, driving down the efficiency ratio 6.5 percentage points to 46.2%.

Cost of credit was also down 72.4%, down on the high levels in the fourth quarter of 2020.

When we look at our credit portfolio, we grew at 9.8% in Chile and 7.6% in Colombia in constant currency compared to December 2020, with mortgage and commercial loans in Chile and the same amount in Colombia as the biggest contributors.

The average rate of financial margins with clients increased 64 basis points compared to the fourth quarter 2020 as a result of high interest rates and a higher capital base after the capitalization process.

On Slide 18, we see how our loan portfolio mix evolved in the last 12 months in Chile. The overall portfolio grew by almost 10% with mortgage loans growing by 18.9% and consumer lending growing by 8.9%, consistent with our strategy and guidance for 2021.

The share of retail loans in our portfolio increased by 205 basis points from 4.8% to 36.8%. Since the merger in 2016, the share of our retail in our loan portfolio increased by 838 basis points. We still see more attractive growth in turn in retail. We need to be selective in growing most sales to ensure shareholder value creation. Nevertheless, we have transformed our wholesale bank under new leadership and expect to be able to accelerate growth as we capture more business opportunities that makes sense on a value creation standpoint.

Moving to Slide 19. Financial margins with clients in Chile grew 31.9% year-over-year driven by all of 3 financial margin components: assets, liabilities and capital. Those margin was boosted by the capitalization completed in the [ third ] quarter.

Loans and deposits had strong positive contributors, both in terms of volumes and spreads. The chart on the right-hand side shows that our financial margin with clients annualized average rate, which rose by 50 basis points in the fourth quarter is beginning to respond to rising interest rate, which had a positive direct impact on the margin on demand deposits and on capital. We expect this dynamic to continue as the tightening cycle progresses over the coming months.

On Slide 20, we see that our financial margin with the market was CLP 45.6 billion in the fourth quarter, about 16% higher than that of the fourth quarter of 2020. The 3% inflation observed in the fourth quarter had a strong positive impact, which was captured through an increased UF exposure relative to prior '21 levels. As a result of financial margins with the market in the current quarter was nearly double of that of the third quarter of 2021.

On Slide 21, we show that our noninterest expense increased by 11% compared to the same quarter in 2020, with only 3.3% on a full year basis, which corresponds to half the inflation rate in the period, as demonstrated in the chart on the bottom left of the page. Therefore, we again delivered on our long-standing commitment of growing expenses less the inflation.

It's important to take into account that the annual growth of 3.3% or half of the inflation rate, of course, in the context of nearly double-digit loan growth and an overall revenue growth of 50.6% with all revenue lines growing double digits. As a result, the bank's efficiency ratio improved significantly, dropping to 46.3% in the fourth quarter.

Here on Slide 22, we can see our main credit risk in Chile. Cost of credit in the fourth quarter was CLP 69 billion, which corresponds to 1.4% of our average loan portfolio, partially explained by 19.5% Chilean pesos in additional provision as we continue to strengthen our balance sheet in a still [indiscernible] scenario. On the other hand, cost of credit for the full year was significantly lower relative to 2020.

NPLs continued to decline in the quarter as the good portfolio performance continue amid benign credit conditions. And coverage ratio was up as we have established additional provisions during 2021 for wholesale credits in sectors that we believe are still at risk of deterioration as a result of lingering effect of the 2020 declines.

Let's move to Slide 23. In Colombia, we are moving forward with the implementation of our turnaround plan. In that context, we continue to restructure our operations. In December, we took another step.

On the turnaround plan in Colombia has efficiency as a very strong driver as we can see in the fourth quarter numbers for branches and head count as well as the following noninterest expense relative to the third quarter. We also have declining NPLs and increasing NPL coverage, although to a lesser extent to that what we saw in Chile.

With those implementing our turnaround plan during 2022, and we should start seeing some results over the next 3 quarters. We should see a higher pace of improvement in efficiency this year while a capture of revenue-related opportunities will take a little longer. Overall, we expect to have captured most of the effects of this program in 2023 as we progress towards our medium-term target of return on tangible equity between 10% and 12% in Colombia.

Here on Slide 24, we show our liquidity position remains very strong, with both LCR and NSFR as historically high levels even since that of 2020.

On Slide 25, we can see our fully loaded CET1 capital ratio increased 355 basis points quarter-on-quarter as we completed a $1 billion capitalization in this quarter to bolster capital ratios and support future growth. We included the impact of purchase of the additional 20 -- 12.4% in Itau Colombia, which we completed last week. The pro forma CET1 ratio reached 9.3%. That level is right about where we said prior to the capitalization process that we expect it should be as it had been completed.

Also important to highlight is that last December, we started the implementation of Basel III. The regulatory adjustments of the capital base will be applied progressively during a 5-year term without deductions in 2021. On the other hand, risk-weighted assets have changed from credit risk under Basel I to credit market and operational risk under Basel III. We are not only compliant with current CMS required capital, but also compliant with our higher internal win. Consistent with the bank's capital planning and prior statements, the Board also confirmed last week the proposal of distributing the minimum 30% of 2021 net income and dividends.

Now if we move on to Slide 26, where we kept how we fare in 2021 compared to the main performance metrics and objectives we announced at the beginning of last year.

Loan growth was stronger than expected, nearly double our initial forecast as it has the momentum in the fourth quarter. Our retail business expanded rapidly as we resumed the growth in consumer loans while maintaining a positive trends in mortgage loans in growing our commercial portfolio by 7%. The cost of credit surprised us positively coming to 0.7% while noninterest rate -- noninterest expenses will have the inflation rate in just over 1/5 of the revenue growth of 3.3% compared to 15.6% in revenues. Overall, we came in line or better in every metric while reaching an internal [indiscernible] company of 15.7% on a consolidated basis.

Now we talk about 2022. On Slide 27, we present our macroeconomic scenario. For Chile, some mobility tightening at the start of 2022 may contribute to weaker growth in the upcoming months. Beyond short term effects, a tighter macro policy stands and still political uncertainty points to a GDP growth is going down to 2%. A few high inflationary pressures in the short term in elevated medium-term inflation expectations lead us to expect inflation of 5.2% in 2022. In this context, we expect that the interest rate side in this cycle to continue until the monetary policy rate reached 8% by the end of this year.

On Colombia, the still favorable external environment, no significant mobility restrictions and expansionary macro policies supported a swift GDP recovery last year. We foresee a GDP growth of 4% this year against 10.6% last year, supported by a more favorable carryover in strong terms of trade.

Global supply constraints, high commodity price, widespread indexation and a weak Colombian pesos points a persistent inflationary pressures in the short term. Inflation is likely to close 2022 at 5.5% against 5.6% last year. Finally, we expect interest rates to reach 7.5% by the end of 2022.

There is considerable uncertainty to the scenario as a result of political conditions, both in Chile and Colombia, the cycle of ratable increase in interest rates to [ contain ] inflation and the developing of geopolitical situation.

In this context, we will focus on what we can control and carry over our digital operation, which we believe will ultimately determine our performance in the near future.

On Slide 28, we present our guidance for 2022. The first point is that we expect our average rate of financial margin with clients to continue increasing as interest rates rise as margin on demand deposits and capital increase in the interest rates as they did on the fourth quarter.

For the local credit portfolio, we expect high single-digit growth in a slower economy, consistent with our goal of being the fastest-growth bank in Chile. As we have mentioned before, we expected the cost of credit of 2022 to be around our long-run expected rate, only within the range of 0.7% to 1%.

We will also maintain our focus on efficiency and expect to once more deliver below inflation cost growth.

On Slide 29, which is our last slide, we recap our recent achievements. We successfully completed a $1 billion capital increase as well as the acquisition of the additional stake in Itau Colombia as per the 2014 transaction agreements. More importantly, we delivered every metric of our 2021 guidance while reaching 15.7% consolidated return on tangible equity. In 2022, we will build on meaningful progress while pursuing even more ambitious goals. Our first goal is to become the market leader in NPS in Chile.

We mentioned those 2 together because as we saw in the consumer markets [indiscernible] in this presentation, customer satisfaction and growth comes hand in hand. We will also accelerate our digital transformation in agile working model deployment, taking advantage of the momentum and knowledge that we view while fully leverage the skills of the new talent that we have incorporated. We will finally -- we will finalize the implementation of our turnaround plan in Colombia and begin to see more substantial benefits.

Last but not least, we will continue to push forward towards our target of 13%, 14% return on tangible equity on our new -- in larger capital base, delivering value provision for our shareholders.

We conclude this part of the presentation, and we are glad to take any questions that you might have.

[Operator]

[Operator Instructions] Your first question comes from Alonso Aramburu from BTG Pactual.

[Alonso Aramburú, analyst]

Two questions on my side. First, Gabriel, I mean you mentioned the sensitivity of client margins to higher interest rates in Chile, which is positive. I was wondering if you can give us a sense of roughly how much do you expect client margins to expand for every, let's say, 100 basis points of higher rates? And my second question when you talk about getting closer to your medium target of return on tangible equity, where do you expect that number to be roughly in 2022? Do you think that's going to be somewhere between 10%, 11% on a consolidated basis?

[Gabriel De Moura, executive]

Alonso, thank you for your questions. Regarding the margin, and the same comments I had for return on tangible equity, Alonso, we refrain from having a short-term guidance for both of the [indiscernible]. There are some vulnerabilities along the way. But I can make some comments on one of those mix.

First in financial margins, and you have all the numbers in the MD&A and also on the financial statement that we published in [indiscernible], sensitivity where we have for interest release. But more importantly, I think that on margins, what we are seeing is that remember that we used the same model that Itau [indiscernible] has for publishing margins, but I think it helps that you understand transactions with clients, capital and also market.

So on client side, what we are seeing is that the spreads are resilient. So we are seeing opportunities to maintain or, in some cases because of changes in mix, increasing our financial margins with assets.

In liabilities, that takes most of the deposits and also the -- especially the current account deposits that we have, they are highly sensitive to increases in interest rates because we have them in short term. So -- and you're going to see financial margins with liabilities, an important increase this year on the margins that we have with clients.

And the third one for the financial margins with clients is on our capital because we also have our capital in the shorter term. And especially considering the capitalization we had, we expect margins with capital to have considerable improvements this year.

The flip side to the discussion relating to the financial margins with the market, especially on the banking group, of course, higher interest rates affect the margins of the banking book. However, with the high inflation because of our exposures to inflation, that compensates some of the costs are the renewal of the -- the velocity of renewal deposits in assets on the banking book. So you have the sensitivities on book, the minimum mark-to-market. But what I can tell you is that we expect this year as interest rates rise to have a positive impact on financial margin.

And if you take a look at the map that we have of the correlation with margins in interest rates, you're going to see that, that was the case on the past where the interest rates went very low in Chile except the -- in margin targeting that I stated before.

On return on tangible equity, I think that we will continue to evolve on this discussion, especially, of course, the capital increase that we have dilutes our return on tangible equity compared to last year. So in Chile, we have roughly 20% in return on tangible equity, of course, regard to see a dilution of that. Even in terms of profitability, our expectation is that we can increase on the results that we had last year.

In Colombia, also, we have high hopes for the restructuring that we have. If you take a look at the numbers and the impact that we have on expenses in Colombia, I think that we want to see similar magnitude this year. In Colombia, we will start to have a positive contribution in terms of return on tangible equity. So the guidance that we have is for medium terms -- from medium term. And on a consolidated basis, as I mentioned, something around 13% to 14%. That's the type that we have. I mean it's very feasible and converting Colombia to our customers equity between 10% and 12%, also on the time line that we mentioned. That's pretty much the guidance that we have.

[Operator]

Your next question comes from Jason Mollin from Scotiabank.

[Jason Mollin, analyst]

My question, my first question is related to the impact of inflation on your balance sheet and P&L. So if you could just help us understand how the bank made money with their inflation gap, if you want to use the last quarter or the last year? And then talk about that -- how that should evolve as inflation goes down, we'll start having prints where inflation is lower than it was even if it's elevated, the rates need to be higher. And my second question is related to the mortgage bulk in business. A really impressive growth there. If you can talk about that market with rates going up, how are you funding that? And are you taking gaps there? Or are you trying to match the funding? Or what portion do you hedge on the long-term mortgage book? 19% growth, I think you showed year-on-year almost 19%.

[Gabriel De Moura, executive]

Sure. Jason, thank you for your questions. When we walk about inflation, let's separate the discussion into what is the balance sheet and what are the hedges that we use on this. Basically, markets are the leading driver that we have for assets that super indexation on inflation. We have all the assets, but I will tell you that perhaps the larger influence on assets that we have are on mortgages. On the flip side on liabilities, the long-term bonds have been issued, especially the [ super ] bonds that Corpbanca had, that Itau had. They are [ indexed ] in inflation.

So just on assets and renewal rates, we are very low on real interest rates [indiscernible] so we are index in inflation. Of course, we will use our exposure to inflation using hedges. So we have a positive position on derivatives in which we go a little bit higher, a little bit lower based on our risk appetite on market.

I think when you compare and contrast to some banks in Chile, I would say that we manage our exposure in inflation, and that's a little bit different. Some banks, in my view, we have a tax expense on inflation, meaning that there is -- inter denominates their capital in the U.S. or they are given the preference and discretion. If you take a look at within the Chilean market, people can -- to use the U.S. as a currency in their businesses and [indiscernible]. So locals, they are usually more comfortable in just having U.S. And if inflation is higher, it's higher. And if it's lower, it's lower.

There are banks, on the other hand, that are a little bit more active on that. And I would say that we are one of the [indiscernible] inflation as one risk factor in our model, and we calculate limits that we have on treasury to operate around that. So we are not passive. We are active on our exposure. And that generates benefits and also sometimes markets better than us. Other times, we are better than the market. That's the sweet side of having an active exposure against a passive exposure.

What we did last year, if you take a look the [indiscernible] within 2021 with a higher exposure to U.S. As inflation remained higher during the year, we decreased our exposure. And by the last quarter of the year, as we saw inflation getting higher, we increased our exposure. So you have the numbers on the MD&A on how much that affected by our financial margin with the market. So one important point, that impact of inflation is not on financial margins with client. That's only client. Businesses is not affected by market factors as interest rates [indiscernible] for either inflation. That is captured on financial margins with market because then, again, we see that as a risk position of our balance sheet and within limits that we have for managing our treasury exposure.

We began the year, this year, with a higher exposure. As inflation runs above our expectations, perhaps we will still be open margin inflation this year, and we will close down the position as we see converting down. So then again, I think that it's an active position. It helps us in a way to counteract the impacts that we have on banking of higher interest rates.

And there are other effects, for instance. You remember that the [indiscernible] line that the central bank had, they were fixed on interest rates at 0.5%, if I'm not mistaken, and as a liability for the bank, and we were on a shorter term. So as the interest rates get higher, I have a benefit of the liability against the assets that we have. So that's pretty much how we manage inflation on the bank. I think that us and other banks, perhaps the banks that saw that, that denominated, for instance, the capital in the U.S., they did better than us in inflation this year. And perhaps on a down cycle or more volatility on inflation, our active managed can be stretched more out on this position than [indiscernible]. It's still to be seen perhaps if you take a look at the market.

On mortgages, first, we always operate not with a mismatch. So we have a mismatch of interest rates. We have a mismatch of terms that we operate in the market. So as funding in Chile special in longer-term time 30 in years, 25 years became more scarce, we decreased our position on mortgages of that longer term. And what we are seeing in the market is that we are with more flexible rates than the market. So all the market at the end of the day converts to floating rates for the shorter term, we did pretty much the same. So I wouldn't say our play on mortgages is not based on a market view of inflation of interest rates. We do not operate any mismatch on this market. But I think that the benefit that we had was understanding the cycle of the clients being very active on the market because if you take a look at our portfolio, we had a participation that was lower than our fair share for mortgages.

And the -- for instance, the loan to value that we have for the whole portfolio, if I'm not mistaken, something below 60%. So we always operate in these levels that are very comfortable for us in terms of client exposure as the dividend that we bridge for the mortgage. The installment that we base the commitment of income at levels that we are comfortable, of course, what we are seeing is more a financial burden as interest rates and inflations is higher. Financial burden for clients are a little bit higher than what we saw in 2020, in 2021. But consistent to what we saw in 2018, 2019. So we are comfortable with the strategy we are pursuing in mortgages. And then again, I think that the growth that we have is based on the digitalization, the effort that we put in [indiscernible] and also the participation that we had that I think must lower than market share.

[Operator]

Your next question comes from Yuri Fernandes from JPMorgan.

[Yuri Fernandes, analyst]

I had a question regarding the effective tax rate. We have a lot of moving parts here. I guess Colombia, you have a higher tax rate in 2022. I guess you have some tax credits. So what we expect, and if you can explain a little bit, what happened this quarter that we had this tax reversion in Chile? That's the first one. And I have a second one regarding the shareholder [ excess ] with your follow on the capital increase. You have this excess liquidity. You already mentioned that your margin to market will be much better in 2022 as higher rates help on the deposits, help on this excess liquidity, right? But my question here is most of the money is on floating rates so we don't see a major OCI mark-to-market risk on this portfolio? Or is the bank for any ALM reason, you need to match this money with any, I don't know, fixed portfolio you have? So what should we expect for this money? It's mostly floating. And as you said, the working capital of course will move up as rates move up in Chile or no? Part of this is that fixed rate or if it's inflation or any other kind of [indiscernible] that the impact is less direct.

[Gabriel De Moura, executive]

Sure. Thanks so much for your question, Yuri. What -- and perhaps complementing also the question that James had about inflation, there is a second order effect in Chile of higher inflation that affects taxes. And that's why I think that we see a volatile effect in tax rate that we have in Chile is that, remember, that in Chile we have monetary correction of your shareholder equity by inflation that generates a tax shield for you. So within a month, for instance, that I have a very high inflation rate, for instance, in great revenues for all the reasons that we talked before, one effect that is also compounding to inflation here is that because of the tax shield of the correction of inflation on our shareholder equity in the tax shield that generates is going to have an effect, a lower effective tax rate. So that's all also in combination -- Jason's question about the effect of inflation. Aside from the banking book, you also have for us and pretty much everything in Chile an impact on the shareholders' equity, so I think it's a given effects to keep in mind.

So as we see a high inflation on a quarter, you're going to see that effect in -- on effective tax rate. Another effect we had last quarter. Remember that we had in Colombia specifically, they announced a high tax rate for banks. And within the process of a higher tax rate, we have to revalue the deferred tax credits that we have in Colombia. So that generated an impact on deferred tax credits. That always happens in a bank. We have a future higher tax rates because we increase the [indiscernible] that we have on the profits [indiscernible] and we were able to that. I think that's a very specific impact that we have in Colombia as well, then I don't see that repeating even in Chile and Colombia in the short term.

Your other question, Yuri, and I'm sorry because I had some connection issues that I didn't quite follow up other things in the U.S., but let me try to rephrase that. And if I'm not correct, you can ask again. You were talking about the effects of the high interest rates that we have in Chile on the banking book and [indiscernible] and also I think that you were talking about the effects on 3 mark-to-market for the assets that we have and how we see that affecting margins on the future.

So of course, one impact that we're going to see is remember that the banking [indiscernible] is the counterpart to all the other margins. So we expect financial margins with market -- with clients to be higher than last year for the reasons that have been expected. In the same way that the banking book margin, I think that we expect it to be lower than we saw last year as it is the counterpart for that and also for the -- in pricing of assets and liabilities.

In terms of OCI, we had an impact of around CLP 100 billion on the balance sheet from the higher interest rates by last year according to the benchmark that we did with the other banks. I think that was better than what we saw in the industries and some other banks were highly affected by it. And we do expect to go through margins throughout the next [indiscernible] situation that we have [indiscernible] around 5 years towards that portfolio.

Having said that, there are other effects on margins that I mentioned on higher inflation. The [ XTIC ] that we have that generates a better -- a higher impact -- a positive higher impact that kind of net out the negative impact that we have. But in terms of the dynamics that we are probably going to see on the banking book this year and perhaps -- and in 2023, in fact, we are going to see a better impact on financial margins with clients. And we're going to see in the market, not market as a whole, market specifically the part that we have on the banking group. Remember that, for instance, we are one of the largest players in effect in Chile. We have a large derivative business that's on the trading in market-making businesses that are growing very well.

But the major book, I think they're rising. We're going to see a margin that is less than that when we -- when composed everything and still bullish in our ability to grow the bank as we grow and incorporate new assets and then that also generates opportunities from the banking book. But as it happens with all the banks that I know, when interest rates are higher, it's a more challenging environment for the banking group compared to when interest rates are lower. But these tend to net out in the other margins within the bank. That's why we are positive on margins as a whole. I don't know if that was your question.

[Yuri Fernandes, analyst]

No, no. Yes. Yes, my concern was like we saw in some of the peers like [indiscernible] impacting OCI, and I think those things they can be very challenging for banks, for us, right? Like I mean, explaining without the full picture but your explanation is great, Gabriel.

[Operator]

There are no further questions -- we do have one more question from Yuri Fernandes from JPMorgan.

[Yuri Fernandes, analyst]

Yuri on the line. Gabriel, if I may also ask on asset quality. We saw a very good renewal [indiscernible] formation this quarter, right, as you said in the presentation and you -- and similar to other banks in Chile, you have been provisioning more in the new retail formation. And you have this guidance for 2022, that is very good. And my question is, do you see the company reducing the additional provisions you built over those years? Or you think like with those 0.7% or 1% cost of risk, that's the normal -- kind of normal cost of risk level and you will still keep the additional provisions on your balance sheet? That's the first one I have. And I have a second one, more strategic, like about the company and your view on share price. I guess 2022 is a much better -- 2021 was a much better year for the company as a whole. Our results are much better, and still, we see some investors still a bit disappointed with all the needs in the past. They didn't believe in the strategy, but you are delivering now. So my question is what do you think is going to be the trigger for the company, for the shareholders to recover some of your confidence on results because the results are there? And in my view, at least, the share is not reflecting the full value of the franchise. And also, my question is what's going to be the trigger, in your view, for some minor shareholders to recover like the confidence on -- that the company has really discounted?

[Gabriel De Moura, executive]

Thank you, Yuri. On asset quality, as we mentioned, we took -- we'll keep the possibility of doing more conditional provision in our balance sheet. There is a part of our portfolio that is always more volatile in NPLs. And this is [ converted ] that I always do to people that our portfolio need that we have is a real application on what we're seeing in the markets that we are more heavily concentrated on commercial, especially large corporate projects, right? So the NPL measurement, I think that it seems a good prediction for the mortgage portfolio, for the consumer portfolio. But on the commercial portfolio, especially large corporates, I mean we generate that we -- I am much like to take a look at all the metrics that you have on CMS [indiscernible], to what is the substandard portfolio, what is the [indiscernible] portfolio we have in different [ regions ] that you can classify in our portfolio. You take a look at coverage that you have for different parts of the portfolio on wholesale. That's publicly available information in the CMS and can compare different lines to something that we are very comfortable with the level of provision coverage that we have for those [indiscernible] forms.

But we did see because one specific case are a better performance on the portfolio as a whole. I always like to take a look at different components. So especially on consumer in mortgages, I still see on the fourth quarter, better NPLs than we see before. Having said that, for this year, I think that we are going to start to see this converging back to their [indiscernible], right, back to what happened prior to 2019, prior to what was the social unrest to Chile. I think that's a more consistent long-term deal in terms of NPLs and cost of credit. Not in our case. I think that in our case, [indiscernible] is 0.7% to 1% that we mentioned. But for the market as I a whole, I think that number makes sense.

On the commercial side and we even more [indiscernible] to additional provisions for the commercial side, it's less driven by NPLs and more driven based on the guarantees that we have for different projects or assets that we have. So we are always evaluating a market rate what is the value that we have for the guarantees for large corporate.

So based on our model, I think it makes sense given the volatility for the market, higher interest rates. It made more sense for us in terms of the loss given [indiscernible] that we use for corporate to increase additional provisions. And I think that we are comfortable at this moment with everything that we have. But throughout time, what we might see or probably you will see is [indiscernible] those provisions for the changes that we have for the -- I mean, at the end of the day, we do additional provisions based on our future expenses and not [ going to leave ] management. We do it based on our future [ expectations on ] [indiscernible]. It enables us to have lower volatility on our balance sheet and be more prepared to the concentration that the portfolio has, so on and so forth.

So probably this year, we are going to see the cost of credit with the levels that we mentioned. We might use some additional provisions, assign them to specific cases. And we're going to see a dynamic, and it's a little bit different when we saw 1 quarter last year. If I'm not mistaken, we had a cost of credit around 0.2%, which is very low compared to the expectations we have. So this year -- then again, in conversion, I don't think that will convert too because there is still positive lingering effect on liquidity in income within the industry. Employment is picking up, but probably in 2023, I think that we are going to see kind of business as usual situation in cost of credit.

In the share price that we mentioned, I think -- I mean the only story that we have in Itau Corpbanca and all the challenges that we have with the credit portfolio with the restructuring in Colombia meant that we have some volatility results since 2016. And then for sure, as you mentioned, as [ we get impacted ] investor confidence at some level. I think that what we have to do is deliver the results that we are delivering consistently through our time, and people will perceive the value. I mean at the end of the day, there are things that we control and things that we do not control. What we can control is the transformation that we're doing and the results that we are getting. I think that investors need to make their decisions considering that. Having said that, indeed, an asset manager from [indiscernible] and myself, I think that people are taking a look at the numbers, taking notes, taking -- seeing the consistent and volatility. And at some point, I think they will recognize that when I see the bank largely discount among these peers in Chile, especially considering the results and the capital base that we now have. Now I think that we have the interest with the business as usual.

I think that as we deliver what we have promised, and if you take a look at the guidance that we have, what we said we are going to do and what we have delivered in the last 18 months, I think that we are pretty consistent. I think that we need to continue to do this.

[Operator]

There are no further questions over the phone at this time. I will turn the call back over to Claudia for the webcast question. Claudia, please go ahead.

[Claudia Montevecchi, executive]

Thank you Julie. We have one question from the con call coming from Daniel Mora from CrediCorp Capital.

He says, thank you for the presentation. And then he asked, warranty ROE and ROTE guidance for 2022, considering the outlook for this year and new capital. Can you provide it by country? What would be the main driver for this expectation?

[Gabriel De Moura, executive]

Okay. As I mentioned, we will not give short-term guidance in terms of results or returns because then again, there are volatility in the market and we have our plan. We have our budget. We have a clear view of what we are doing even in the short term or medium term. But what we can commit, and we are very comfortable in the way that we advanced towards that goal is to have a return on tangible equity on the consolidated basis between 13% and 14. And Colombia converging to its cost tangible equity of 10% and 12% in the next couple of years. That's what we are working for.

I think then again by the numbers that we are showing -- what we have shown are consistent with that direction. I think that the main drivers for that convergence, they are explicitly within the guidance that we have. We expect margins to continue to go up. We expect cost of credit to be behaved. We've been the medium- to long-term view that we have for our cost of credit portfolio and the additional provisions that we have enable us to have a better view in volatility of that number of the efficiency that we have that we've been able to deliver lower cost in inflation for the last few years, and the growth that we are seeing on our portfolio and customer satisfaction that I think gained sustainability to this. Those are the main drivers. That's where we are delivering.

And I think that if we continue to do this, and that's what our numbers show us is that we are able to do this convergence. I don't think it's easy. I think the market is very competitive. Nevertheless, as I mentioned to you, when we first started talking of growing in Chile, I remember people saying, no, but the market is very consolidated. The market is very efficient on retail. It's different from the other countries. Okay, since 2015, we grew 3x the market.

I remember people saying, no, it's very hard to change the mix on the bank. We changed the mix to retail by 8.5% almost. It's the largest change in mix in a bank in Chile. So we are doing what we said that we are going to do. It's true that since 2016 especially on the credit part of the portfolio in Colombia, we have generated some frustrations around the expectations that we have and the market has. But if you take a look at the drivers that we have planned that we have, how the market has perceived the decline, how interesting is the digital offering that we are putting forth, these people that we're putting forth. I think that we have all the necessary levers to continue to grow and to achieve this.

I think that the capitalization takes out one discussion that we always have on how we are going to capitalize the bank and the capital that the bank has compared to its peers. I think that we might be able to increase the rate that the bank has with this high capital ratio that might generate a positive impact on cost of debt and leading something for us. So I think that everything is going according to the plan. But then again, as I mentioned before, it's 1 quarter. We have to deliver another one. We have to deliver another one. But when you take a look at the price to book and take a look at how banks are trading, take a look at the transaction that was recently announced in Chile, prices don't make sense for me, but that's up to investors to decide.

[Operator]

Thank you. There are no further questions for today. I will turn the call back over to the presenters for closing remarks.

[Gabriel De Moura, executive]

Fantastic. Thank you so much for another conference call. As I mentioned, we are going to do this 1 quarter at a time. I think that everyone in the bank is very excited on what is happening, the talent that we are bringing, things that we are delivering. And I think that we are going to see those on the next quarter as well. Take care, everyone. We'll see you.

[Operator]

This concludes today's conference call. You may now disconnect. Thank you.