Banco Itau Chile

SGO:ITAUCL

Earnings Call Analysis

Banco Itaú Chile Quarterly Progress Highlights

Banco Itaú Chile has successfully transformed its strategy, narrowing the gap with peers in asset yields and improving profit ratios. The focus on client principality and delivering best-in-class customer experience has led to increased digital branch usage and high customer satisfaction. The company's unique Itubers Culture fosters high employee satisfaction and talent attraction. Intensified efforts on brand transformation and product capabilities, especially in insurance and asset management, have strengthened Banco Itaú Chile's market position and efficiency, outpacing peers in various areas.

Strengthened Net Income Amidst Efficient Cost Management

The company reported a consolidated net income of CLP 87.4 billion, marking a 4.6% increase year-over-year. This growth is attributed to a higher customer financial margin combined with a stable cost of credit and expenses. In Chile alone, net income reached CLP 95 billion, with a robust return on tangible equity of 15.1% in Chile and 11.1% when consolidated with Colombia.

Financial Margin Growth and Expense Control

Consolidated financial margin with clients expanded by 8.6%, driven by increased volumes and higher spreads in both Chile and Colombia. However, fee income slightly dipped by 0.4%, due to decreased credit card and ATM fees in Chile. Despite this, the company managed to keep consolidated net income expenses nearly flat with only a 0.4% year-over-year increase, achieving an efficiency ratio of 51.9%.

Maintaining Credit Quality and Cost of Credit Within Guidance

The cost of credit sustained a modest climb of 0.6% over the previous year's final quarter, with the quarterly figure reaching CLP 83 billion. This was a considerable 37.2% increase from the previous quarter but within the company's forecasted range for the cost of credit, which concluded the year at 1.2%, consistent with the guidance of 1.1% to 1.5%.

Enhanced Capital Strength and Cost Efficiency

The company successfully carried out a capital increase of $1 billion in 2021, which significantly bolstered its capital generation capability. It has impressively enhanced its CET1 capital ratio from 7% in 2019 to a robust 10.4% by the end of 2023, positioning itself second highest among its market peers. Additionally, the company undertook a strategic 10% headcount reduction to capitalize on efficiency gains from its digitization and process optimization efforts.

Sustainable Growth in Key Business Segments

Over the past 12 months, the company exhibited a total loan growth of 1.5%, with consumer loans growing at 5.2%, more than double the system's growth rate. Itaú also surpassed the system in the growth of current account balances and in managing assets under management, demonstrating vigor in critical strategic areas. Particularly, asset management fees surged by 10.3% compared to the previous quarter and 32.2% over the previous year, reflecting the success of its focus on the investment business.

Commitment to Sustainability and Social Responsibility

On the sustainability front, the company is aiming to be a net-zero carbon emissions bank by 2050, and in pursuit of this, has begun measuring finance carbon emissions across its entire wholesale portfolio. A notable achievement includes the introduction of a new sustainable asset rating system to guide financing decisions and client support in their eco-friendly transitions. The company’s efforts extend beyond their operational footprint; they invest in local community initiatives such as wildlife protection and supporting the rehabilitation of people with disabilities. These initiatives have led to the company being recognized as a top performer in sustainability rankings, reinforcing their commitment to environmental and social stewardship.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Banco Itaú Chile Fourth Quarter 2023 Financial Results Conference Call and Webcast.

[Operator Instructions]

Thank you. Claudia Labbe, Head of 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 2023.

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 we are presenting our income statement in the same manner as we do internally, 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 12 to 15 of our report for further details.

Now Mr. Gabriel de Moura, CEO of Banco Itaú Chile, will continue with the presentation.

[Gabriel De Moura, executive]

Thank you, Claudia. Good morning, everyone. Thank you for joining us for this fourth quarter 2023 conference call.

As usual, we will update you with our progress in implementing our strategy as well as present the highlights of our fourth quarter results. My first message is that the process of transformation that we began in 2020 has reached a point where we can say that the transformation has happened.

As I will show you in the next slide, for instance, the Slide #3. As we have said all along, one of the main components of our strategy was to improve returns by changing the mix, both on the asset and the liability side of the bank. For the purpose of our analysis, we consider as our peers, the fourth largest banks in Chile.

As the chart on the top left side shows, our loan mix is now much more similar to that of our peers, which allowed us to narrow the gap in asset yields. The chart on the bottom left side shows the evolution of our profit ratio, which has improved over time as a result of our efforts towards enhancing our results. What was a 17-point gap relative to our peers in 2019 has narrowed to 8 points, making our cost of funding more competitive than it was. We have also had a 10.5 percentage point increase in our efficiency ratio, products of multiple years of containing cost growth below revenue growth and below inflation as well. As a result of the implementation of our strategy, we were able to achieve a return on tangible equity close to or above the average of our peers over the last 3 years.

We did so over a much larger capital base after our 2021 capital increase. When comparing our return on tangible equity between 2019 and 2023, the increase of our capital base over that period represent a drag of about 8 percentage points that we had to overcome to achieve our current level of return on tangible assets.

Now moving on to Slide 4. We can see that although we've been successful in narrowing the gap on the main return drivers relative to our peers, such as demand deposits and fees, we still have higher market share in loans than we have in transactional products, such as credit cards, deposits. In other words, many of our clients still use other banks for their day-to-day transactions. While we will continue to grow our client base, we truly believe that our biggest opportunity is in achieving the principality of our existing customers. Principality is a recurring theme, both when we analyze the performance of our leading peers in terms of returns and when we look at value creation at a client level. Therefore, principality is the key driver for us to achieve the next step in creating value for our shareholders. Principality is not new to us as a matter of fact, for everyone. But it's the one goal that we will pursue with a single-minded focus going forward.

In the next slides, we will present the capabilities we have built for pursuing this principality as well as in some areas where we will intensify our efforts such as our brands.

We now turn to Slide 5. One of the main pillars of our principality strategy is, of course, delivering a best-in-class experience to our clients. Since 2021, we have worked on different initiatives that all together led to a broad-based improvement on customer journey and functionalities, leading us to become the leader in net promoting score for retail and corporations as well as the second in SMEs and companies.

While we were proud with our position in NPS rankings, I believe that our biggest achievement was integrating customer centricity as part of our culture. That is the main capability that we will use to distance ourselves from our competitors and further expand our competitive advantage in customer experience.

On Slide 6, we show some of the progress we made in digital, both internally and in our interaction with customers. Over the last 2 years, we grew from 6 to 13 digital branches and nearly tripled the share of customers in digital branches, from 6.7% to 18% of our total retail clients. We have also added a wide range of products and services to our digital channels, which we have achieved widespread acceptance and penetration among our clients. For example, the share of customer loans transaction through digital channel has reached 98%. The satisfaction of our customers with our digital channel is also demonstrated by our placement among the top banks in the industry in customer satisfaction with digital channels and the rating of our app as #1 by users review in the main app stores.

We now turn to Slide 7. We know that the transformation needs to be part of the DNA of our company. We have created a unique Itubers Culture úberous culture that challenges and stimulates our employees to excel. We have also created an agile and open working environment that is very attractive and has enabled us to be very competitive for talent. Our framework for talent management also includes the association with top-ranked universities in Chile for talent attraction, the development of learning ecosystems and the support of several diversity and inclusion initiatives as well as flexible work initiatives.

The net results of all these efforts in high level of returns -- high-level employee satisfaction show that our employee net promoting score as well as the recognition by Great Place To Work as 1 of the 10 best companies to work in Chile and 1 of the top 10 companies over 1,000 employees for women to work in Chile.

On Slide 8, we turn to an area where we have significantly intensify our efforts lately -- our brand. We begin this stage of our brand in Chile by launching the new Itaú brand, simultaneously with Itaú Brazil. The new brand represents the transformation journey of Itaú over the years. While Itaú has been in Chile for less than 20 years, it is approaching 100 years since its foundation in Brazil.

Over its long journey, Itaú has been a leader in the evolution of financial services, fulfilling its long-standing vision of leadership in customer satisfaction. That evolution has had at its core the incorporation of new technologies at the ever increasing speed. Therefore, the currently obsessive focus on customer centricity and technology is the intensification of things that we have historically experienced an excellent. That is why we say that Itaú is made of future.

Another element of our new branding strategy is the sponsorship of the most important sport tournament in Chile, the National Football Championship. Football is close to the heart of Chile and also to our as a bank of Brazilian origin. We believe that this sponsorship will help us to connect with Chileans in a stronger way, which is important as we try to bring customers closer to us.

On Slide 9, we show a little bit about our product capabilities. As a large regional bank in South America, we can serve regional clients in unique ways. We have leveraged our regional footprint to serve our customers across borders, benefiting from our presence in Peru and Colombia with our product offering in Brazil and Chile. Example of this includes deals such as Soprole, Gloria and Fonterra evolving Chile and Peru. Klabin and Arauco involving Chile and Brazil, among others.

We have significantly expanded our product capabilities in insurance through our partnership with Cardif. We are complementing our offering in life, travel, home and theft insurance products. What used to be a gap for us is now a strength, which we will significantly enhance our ability to cross-sell.

In investments, we gained a lot of traction in the second half of 2023. We have long been recognized for the quality of our asset management. and that remains strong as recognized by Morningstar Award as the Best Asset Manager for Fixed Income, Premios Salmón as #1 in Mutual Funds Fixed Income and [ EM ] Inversiones as the Best Asset Manager for Retail Investors in 2023. The big news is that we were able to translate our product excellence in assets under management by growing at nearly twice the market pace over the last 12 months until December 2023.

Let's go next to Slide 10. Where we can see that our efforts to improve efficiency have led us to achieve better efficiency than the average of our peers and reach the third place among that group. We have had a long track record in containing expenses growth below inflation, enabling us to improve efficiency, and we narrow the revenue gaps in terms of asset use, cost of funding and fees. We have redoubled our efforts in cost management, as you will see further in the presentation, which will continue to be an important driver in our strategy.

We now turn to Slide 11. On our sustainable path as part of Itaú Group, we are committed to be a net zero carbon emission bank by 2050. For such a challenge, we worked in two fronts. On the portfolio front, we have succeeded in measuring our finance carbon emissions in 2023 for our whole wholesale portfolio, and it's where we will set our reduction targets for carbon-intensive sectors in 2024.

Also, we have developed a new sustainable asset rating system which will help us in our financing decisions as well as support of our clients in their green transformation through sustainable financing linked to environmental commitments. Our net new agenda is about encouraging clients to incorporate practices that contribute to environmental sustainability through new investments and technology. The other front is reducing our own carbon emissions as a matter of practicing what we preach even though our carbon emissions are not very significant. To achieve our goal of reducing operational carbon emissions by 50%, we're implementing an ambitious road map that includes reducing our energy and water consumption as well as reducing waste generation. As part of our social responsibilities, we seek to support Chile's development and reduction of inequalities. Therefore, we are promoting employability, education, financial environment and disaster support.

Through the Itaú Foundation, we focus on expanding access for children and the young people for vulnerable sectors. Leading activity in team gardens, workshops for young people in schools and internship for young graduates of technical schools have allowed us to change lives.

Finally, we have contributed with the mentions to respond to the fire and flood emergencies that have affected Chile in 2023 as well as recently. Our resources have been directed to local wildlife protection and the telephone institutions that contributes to rehabilitation of people with disability. The track record has enabled us to be for the fifth consecutive year an index component of the Dow Jones MILA Pacific Alliance as well as once again, member of the S&P Sustainability Yearbook, where we ranked top 15 of our industry based on the results of the S&P's Corporate Sustainability Assessment.

Lastly, in 2023, ALAS20 ranked us among the top 10 companies that are positively perceived in Chile in terms of sustainability and investor relations, being sixth on the overall ranking and second on the banking group.

Let's move now to Slide 12. During the last 3 years, we have made several adjustments in our capital base to ensure a solid capitalization to support the deployment of our strategy. We executed a $1 billion capital increase in 2021 and have consistently been enhancing our capital generation. Along with strengthening our solvency ratios well above regulatory minimum and aligned with international benchmarks, we have consistently delivered a result above the cost of capital and core capital generation being among the top players in the industry. Our efforts led us to evolve from previous CET1 of 7% in 2019 to close to 2023 with a full-loaded CET1 ratio of 10.4%, the second highest in the market in comparison to our peers, as you can see in the chart at the bottom of this page.

On Slide 13, we show a little bit of the macroeconomic background in the last quarter, which needs to be considered when analyzing the banking industry's performance at that period. Interest rates declined but remained at a high level, while inflation rebounded a little bit but remained far below the levels observed in 2022, in the quarterly exchange rate against the U.S. dollar fell slightly. Against this backdrop, loan growth is low to 3.4% and time deposits growth is low to 4.7%, and the decline in depend deposits also showed to minus 2.4%.

Now moving forward to Slide 14. We will present the financial highlights for the fourth quarter of 2023. Our consolidated net income reached CLP 87.4 billion, an increase of 4.6% year-over-year, mainly because of the combination of high customer financial margin and a stable cost of credit and expenses. While the net income in Chile was CLP 95 billion, return on tangible equity was 15.1% in Chile and 11.1% consolidated with Colombia.

Consolidated financial margin with clients grew by 8.6%, boosted by higher volumes as well as higher spreads in both Chile and Colombia, which positively impacted financial margin on assets and the capital margin, respectively. Consolidated fee income has reduced by 0.4% due to lower credit cards and ATM fees in Chile. Consolidated net income expenses increased by 0.4% year-over-year because of lower personnel expenses in Chile, offset by an increase of expenses in Colombia. The consolidated efficiency ratio for the third quarter was 51.9%.

Consolidated cost of credit increased by 0.6% over the high base recorded in the fourth quarter of 2022, negatively impacted by higher provisions in Colombia, partially offset by higher recoveries in Chile. When we look at our credit portfolio, it grew by 0.9% in Chile, and minus 8.3% in Colombia in constant currency compared to that of the quarter of 2022, with customer -- with consumer and market loans in Chile as the biggest contributors that partly offset lower consumer growth in Colombia.

We now move to Slide 15, where we show that our financial margin with clients in Chile increased by 9.2% during the quarter and 6.9% over the previous year, supported by the average growth observed mainly during the first half of the year and better margins in retail portfolios. The increase compared to the third quarter is primarily driven by higher commercial spreads on assets at the wholesale bank and liabilities in pesos chilenos, demand deposits, as well as higher capital margins. The graph on the right shows that our average financial margins with clients rate remain stable as interest rates have fallen as we had indicated both in our guidance for 2023 as well as I have mentioned in previous quarters.

On Slide 16, we can see that our financial margin with markets was CLP 18.1 billion in the fourth quarter, which is higher compared to the previous quarter, but much lower than the same quarter of 2022. Our financial margins with the market has been under pressure due to higher real interest rates which are covering back to normal levels as monetary policy rate decline. It is also worth noting that inflation negatively impacts not only financial margins with the market but also the effective income tax rate as the devaluation of the firm's equity due to inflation is a tax deductible expense for firms in Chile.

Let's go to Slide 17, where we have an overview of our commissions and fees, where we highlight the growth in asset management fees by 10.3% compared to the previous quarter and 32.2% over the previous year, which is a positive outcome of our sustained focus on the investment business.

Moving to Slide 18. We see our main credit indicators in Chile. In the fourth quarter, the cost of credit reached CLP 83 billion, a 37.2% increase relative to the last quarter to reach a similar level to that of the fourth quarter of 2022, despite the pressure on consumer loans and NPLs that has remained at the system level. Our guidance for cost of credit as a percentage of the credit portfolio for this year was between 1.1% and 1.5%. And as you can see, we closed at 1.2% despite the increase in cost of credit in the fourth quarter.

NPLs increased relative to the last quarter, which was expected as we maintain our heightened focus on collections. With the latest positive signs in activity in the labor market, we believe that conditions might improve in the second half of 2024, allowing us to be selective accelerate the origination.

On Slide 19, we show noninterest expenses for the quarter, which, while higher than the previous quarter decreased 2.8% year-over-year. The quarter-over-quarter increase was driven both by higher personnel and administrative expenses. Noninterest expenses growth remained below inflation in line with our guidance for 2023. We were also able to maintain our efficiency ratio at a very good level we had achieved the year before.

As I mentioned before, we made an additional effort last year to adjust our cost base. As you can mainly see the 10% reduction in head count during 2023. After a period of expansion into new activities, we thought it was the right time to consolidate and capture the efficiency gains from digitization, agility and process optimization.

On Slide 20, we highlight our outperformance over the last 12 months in 3 key products for our strategy: consumer loans, current account deposits and investments of assets under management. Our total loan grew 1.5% in the last 12 months to December 31. Whereas consumer growth loans grew 5.2% during the same period, more than double the banking systems growth of just 2.4%. Therefore, even though consumer credit growth is low due to tighter credit conditions, we continue to grow twice as fast as the market.

Itaú also grew more than the system in current accounting balances for companies and individuals, having shown a positive trend in this product while the system delivered negative growth in the period during a period of extremely high interest rates for Chilean standards. In the investment business, our assets under management also grew nearly twice as fast as the system during 2023, positioning Itaú Chile as the bank with the highest growth among peer banks as well as #3 bank overall when other fund managers are included. These figures show that we've been able once more to grow faster than the market in the products that matter most for our strategy.

Let's move to Slide 21 for a summary of Colombia. Despite the macroeconomic downturn in the country, we have remained -- we have maintained a resilient operation, and we have navigated a challenging scenario by maintaining strong capital and liquidity ratios. Despite the inevitable cost of those additional capital and liquidity buffers, we have been able to sustain results just above breakeven in an environment where even some of the big banks have suffered losses and the profitability of our peers fell sharply.

On the right-hand side of the page, we outlined our strategy for improving returns in Colombia. In wholesale, the main drivers of our strategy are levering Itaú strong regional presence and enhancing our value proposition in transactional and noncredit products. In retail, we have a much more focused strategy on affluent segments through investments and transactional products while digitizing and improving customer experience in the low-cost-to-serve segments.

Our strategy also includes relevant efficiency plans based on cost control and strong simplification of products, structures and subsidiaries as well as the reinforcement of strategic talent and cultural transformation. Even though much remains to be done, we have made concrete progress in our transformation in Colombia even though we had to do it while managing through a stressed macroeconomic scenario. The progress is already visible in the improvement of our relative performance versus our peers. And we expected it to translate to even better results when economic conditions improve.

On the next page, Slide 22, we once again showed that we are among the best capitalized and most liquid banks in Chile. Itaú Chile closed 2023 position as top 3 among peers in solvency levels and had the highest organic increase in capital ratios last year. When taking into account differences in capital requirements among banks, we have the second biggest capital buffer in the industry. The main reason for that is that Itaú does not require additional capital by the Chilean regulator in its evaluation of our capital adequacy and risk management.

Our liquidity ratios are also well positioned among our peers and significantly above regulatory limits. The improvement of our financial strength over the last few years demonstrate our commitment to resilience and prudent management, which is an essential part of Itaú's management model.

On Slide 23, we present our macroeconomic outlook for 2024 in Chile and Colombia. Based on less restricted global financial conditions, rates in Chile are expected to end the year at around 4.5%. The Central Bank is expected to reduce the policy rate more quickly to neutral given that the output gap is virtually closed. And inflation expectations are anchored. We expect inflation to end the year in Chile at 2.8%. This is supported by the faster reduction process observed at the end of 2023 and the changes in the CPI basket that reduced to some extent, the indexation effects.

With activity performing better than expected over the past year, coupled with higher growth forecast for China and lower rates, GDP growth is expected to be 1.7% in 2024. In Colombia, GDP growth is expected to be 1.2% in 2024, while inflation is expected to be 4.8% this year. However, inflation risks remain due to the uncertainties surrounding the impact of El Nino on food and energy prices. The reduction of diesel subsidies and the increase in the minimum wage to materialize in 2024.

Despite the current economic slowdown, inflation remains in double digits and inflation expectations are still above target. As a result, we expect interest rates to fall to 8% by the end of 2024, which would be still at a contracted rate level.

On Slide 24, we outlined our 2024 guidance for the Chilean operation, which is actually very similar to last year's guidance. We anticipate our average rate of financial margin with clients to remain stable with the interest rates. We expect loan growth to be around mid-single digits, in line with market expectations. And for cost of credit, our plan is to maintain a range between 1.1% and 1.5%. Finally, we expect cost to grow below inflation levels in line with our efficiency commitment.

Finally, on Slide 25, we recapped what I think is the key messages for this presentation. Over the last 3 years, we transformed our operations across key dimensions of consumer centricity, technology, organization and culture. Improving returns and financial strength as well as achieving leadership in NPS. The next step in our journey is becoming the main bank of our customers, which is where we will concentrate our focus going forward.

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

[Operator]

[Operator Instructions]

We have a question over the web from Yuri Fernandez.

Gabriel, can you please comment on Itaú why using a new brand and not focusing on the bank app, not having to deal with the legacy system. And is it just a brand positioning?

[Gabriel De Moura, executive]

Yuri, thank you for your question. The Itaú strategy for us, it's not in its strategy based on developing a separate bank or separate brand from Itaú. It has to do with segmentation of the market. For instance, when we take a look at the segmentation that we now have on individuals, I have a private bank. We have the personal bank for the affluent market. And we have Itaú Sucursales that takes all the other customers.

But we used to have other operations more broadly that serve clients through, for instance, on consumer loans through a brand that Corpbanca had in the past and that we are moving forward with that, which is Condo. So we are taking out the Condo brand for lower income and digitizing that segment into Itaú. So we feel that the reason opportunity for lower income than the ones that we cater through the other segments of Itaú Sucursal and Itaú Personal Bank, and certainly on the Private Bank, through a digital channel that works with Itaú.

The decision to do a separate app for that, I think it has to do with technology architecture. So we are in the process of evolving all the architecture that we have for core products, and we are doing that for Itaú. So it also, for us, is an opportunity to test different environments in connections with fintechs, to be more agile on some developments and to test themes that will, through time, merge with the app that we have for the bank through another architecture. So the decision was either changing the architecture of our current app, which we are doing, but I think through Itaú, we can do it faster and then again, test the market, test segment, understanding things with lower risk, lower investments than we would by adapting other things that will take a little bit more time. So that's the strategy behind Itaú.

[Operator]

And we have a question over the phone from Andres Soto from Santander.

[Andres Soto, analyst]

My question is related to margins. I see in your guidance, you expect margins to remain stable in 2024. And I would like to get a little bit of a breakdown of that performance between what you expect for Chile and what you expect for Colombia.

In Chile, we have the repayment of [ FCIC ] client. So it will be helpful if you give us a sense of how much impact you expect from this event, which is going to happen between April and June, July?

And in Colombia, I see that your macro expectation is for policy rate to end at 8% by the end of this year, which is a little bit more aggressive than we -- what we -- your peers have been guiding to. And given that you are liability sensitive, I would like to understand, if that's not the case, what will be the impact on that in your consolidated expectations for margins?

[Gabriel De Moura, executive]

Fantastic. And just to be clear on that, the guidance that we have is for the operation in Chile, right? We do not have any specific guidance for the consolidated and also for Colombia, but I can tackle a little bit of the question that you have.

For Chile, yes, we have -- we expect stable margins. If we divide among 3 different components, I would say that the financial margins with assets, we do not expect much pressure in spreads. I think that the market is still in risk management mode in terms of concessions because we are still seeing some pressure on NPLs, especially on the consumer side. So I do not expect markets to enter a process where the banks are willing to decrease the spreads to lower expectations of risk, at least not on the first semester.

In companies, I still think that there is demand, but investments are also a little bit subdued. So I think it has to do also with the foreign markets on how do you expect emissions to go through the other markets should make any comparison to what happens in spreads in Chile. But then again, I think the market should be fairly stable.

On financial margins with deposits, what we will see is as interests go down we will see some pressure on financial margins with liabilities and also with capital. Having said that, we hedged the exposure that we have in short-term interest rates within a longer period that enable us to have a more stable margin and I think that higher levels with compared to the end-of-period interest rates in Chile.

On the banking book side, I think what you are seeing in the results that we had last year, in 2023, to be exact compared to 2022, is a little bit of the impact that you already seen. And I imagine that you were talking about the repayment of the FCIC lines. So I think that there is a negative impact on that, that it's offset by lower interest rates on the banking book. So on the financial margins with the market, which is -- which have all of those effects, we expect returns that are certainly lower than what we had in 2022. But I don't think that it would necessarily be lower from what we saw in 2023, but with different lines. I think that the banking book will be better for lower interest rates and the repayment of the FCIC will have a negative impact on that. And perhaps we can mix and match both of them with the same results.

In Colombia, I think that the expectations that we have for interest rates. I think they are aligned with market prices a little bit, perhaps a little bit more bullish than market prices. But I understand your point that they are higher than competitors are saying, and even the Central Bank in Colombia is saying. We believe at a certain point with conditions in global markets being better, federal reserve cutting interest rates will enable the Central Bank in Colombia to be a little bit faster than they are doing right now.

But having said that, we have exposures in the banking in interest rates. We closed most of the debt exposures in the past. I think that the results that you're seeing in the industry, perhaps they are related to levels of interest rates, but they are also related to the spread over that you have for bank debt compared to public debt in Colombia.

We saw a fairly big jump on those spreads last year. Traditionally, Colombia had a spread between bank debt and public debt around 150 basis points. At certain points, those spreads went over to 50 -- to 500 basis points due to the implementation of the [ CFIN ] and other regulatory events in Colombia. We are now seeing those spreads much lower for us and for all the industry. I think that's a thing industry-wise.

So I think that regardless of the level of interest rates, you might see better results on the banking book in Colombia than you saw the year before, and the numbers that we are seeing on the margin, they translate to that.

So I don't think that the performance in Colombia is directly, in our view, contingent to the level of interest rates. I always say that the internal challenges that we have in changing our businesses and focusing, I think they have more opportunities than the macro conditions.

Having said that, we are in certain on the market, and we suffer as all the industries with an economic downturn. But I still believe that our opportunities for us to increase results by just managing better the portfolios that we have.

[Andres Soto, analyst]

That's very helpful. And just an additional question, this is related to expenses. I see very good results and a significant efforts when I see that your head count declining 6% on a quarterly basis, 10% on a yearly basis. How much additional space you believe you have to continue adjusting costs?

[Gabriel De Moura, executive]

I think that we have to see a big picture here. I think that what's happening in the industry is shifting resources, right? You're shifting resources from physical presence, you're shifting resources through traditional distribution business models and just into digital ones. So we more than doubled our head count in technology in the last 2, 3 years. And we reduced the exposure that we have with branches. I don't see a scenario where we will have no branches in Chile or in Colombia. I think that the branch value proposition for clients is still very strong. I think that we are in the process of reproposing what is a branch and how we tackle customer demands in more complex transactions and advisory such as what we have in Itaú advisers, for instance, for investments.

So I think that in terms of still reducing some of the costs they will be directly related to our investments in technology. I think that we are opening a new chapter as an industry, as a bank, for instance, with artificial intelligence that will enable us to be far more competitive and efficiency in the future. So the long story short for your question is that it has to do with development on technology. And I do see that we are very strong in that development, that are new technologies that we are incorporating that we need to bring new talent and also to develop the culture for those technologies. And throughout time, by consolidated those technologies, we will be able to achieve synergies in other fronts.

So I don't think that the process is over. Of course, it depends in new leaps and bounds in terms of implementing technology. Having said that, I always feel that there is a space to be more efficient in the things that we are doing right now. But it's [indiscernible] to a certain level.

[Operator]

And we have a question over the web from Alonso Aramburu. Can you please comment on expectations of the evolution of margins and asset quality as rates decline in Colombia in 2024?

[Gabriel De Moura, executive]

Sure. In Colombia, as I mentioned -- thank you for your question, Alonso. In Colombia, as I mentioned, I think that the levels of interest rates and also the spread over that I mentioned of bank debt compared to public debt in Colombia, generated a lot of pressure in the banking books. And as I mentioned during the call, you saw that affect widespread within the industry, right? So we saw traditional incumbent banks having in some cases, negative results, in my view, due to a little bit of this movement in interest rates.

Moving forward, I see positive wins on that front. I see spreads -- deposit spreads going down and interest rate expectations going down. And I think it makes sense given that interest rates in Colombia are still very high. So in the banking book side of the businesses, I think that you're going to see better margins. On the client part of the business, you see better prices for clients as interest rates go down. I do not have a specific view on spreads right now.

And in cost of credit, I think that Colombia is still on mid-cycle. I think that we were very conservative in private concessions, especially on the consumer side in the past. I think that we have constituted more provisions and additional provisions in Colombia during the past few years that enabled us to be comfortable during this cycle. But I don't think that the cycle on the consumer side is over. I think that we perhaps are on mid-cycle.

But having said that, our portfolio is much more concentrated on the wholesale side. And in the wholesale side, at least in our case, the portfolio has been performing better than we expected. We had the opportunity of doing some collections, problems in the past that we had that we were provisioned. I think that we arrived at good conclusions. We were conservative again in some of the concessions. And I think that from the wholesale side, I have a good view on the portfolio right now.

But that's pretty much it. In Colombia, I still think, as I mentioned, that most of the challenges that we have are internal in terms of the transformation. As I mentioned during the presentation, I think that we have achieved the level of transformation that was important for Chile and that we are consolidated on a new level of performance. I cannot say the same thing for Colombia. We still have a way to go in Colombia. Of course, macroeconomic winds are against us in Colombia in the past 2 years, which make things more difficult for us. But on the flip side to that, I think that we have a better bank. And I think that we still have opportunities to manage better what we have regardless of the economic cycle.

So I'm more positive in Colombia for 2024 than I was in 2023. But having said that, I think that we are still -- then again, mid-cycle in credit and also mid-cycle in our transformation process.

[Operator]

We have another question over the web from Yuri Fernandez.

You mentioned mid-single digits growth, and Itaú Chile has been growing above peers in consumer loans. Chilean economy is recovering, but approximately 5% growth appears timid. What is a midterm view for Chile? Do you think the industry can go back to 8% to 10% levels. Is it just a matter of investments reaccelerating? Or will Chile be more of a 5% to 7% loan growth country. What are the opportunities avenues in Chile? And any regulatory changes you believe could help bring more growth?

[Gabriel De Moura, executive]

Thank you for your question, Yuri. I think that we are on a credit cycle that the result is this mid-single digits growth. I don't think that, that's a longer-term view in terms of the market. If you think about an inflation of 3% of a GDP growth between 2% and 3%, just to put a number out there. You're talking about a nominal growth of GDP between 5% to 6%. Having loan growth only to that cheap nominal GDP growth seems low in Chile given the way that the economy is structured given the levels of investments that we see in the future, the savings rate that the country still have, I think it's possible for Chile to grow more than this and if I would do any estimates, I think that the 8% and 10% levels are still possible. But I don't think that we are going to see this 8%, 10% levels while we see the credit cycle that we are into.

So in terms of consumer loans, because interest rates were higher, because there is a pickup in unemployment, because the country is leaving a pandemic cycle as many other countries are in the cycle, I think that the credit concession will be more cautious over at least the next 6 months. At the end of the day, I think that the credit cycle will be a consequence of the NPL cycle. As for the moment that we see the NPL cycle going down in the industry, I think that we are going to see an acceleration in credit. And perhaps that's more in the second semester than it is on the first semester. That's on the consumer side.

I think that in terms of mortgages, I think markets are very resilient. I think there is demand on the market due to demographics. But I do see that there is also offer in the market in terms of all the constructions that are now available for selling. And as long-term interest rates have already stabilized somehow, I think that the demand for mortgages might return also in the second semester.

On the commercial front, I think that's a more interesting conversation because for many years, companies in Chile, they went for other markets for their needs of issuance. So you saw bonds of 10, 20, in some case 30 years outside Chile. And also inside Chile, you saw longer-term durations mainly driven by demands for insurance companies that need that they are asset liability matching for annuities and also demands from the pension funds.

I believe some of this demand is weaker as you have the withdrawals from the pension funds and that money was reincorporated somehow within the industry in demand of lower durations. So I think that at some point, you're going to have more demand for local commercial credit from companies in Chile, especially because it's cheaper to issue in Chile compared to outside Chile given the differences in the spread and also in ratings. So I think that we are going to see a better demand for commercials. I think only this cycle will happen in a couple of years from now because the maturities of the debt that companies have is still very long in Chile. So this is not a short-term effect. I think it will be something that will perhaps start at the second semester and it takes couple of years to achieve its maximum.

But then again, this is just a theory based on how I see demand in offer. But concluding all those variables, I think 8% to 10% given those nominal GDP level that I mentioned, I think they are very feasible for the Chilean economy moving forward outside the credit cycle that we are now into.

[Operator]

There are no further questions at this time. I will now turn the call back over to Mr. Moura for some final closing remarks.

[Gabriel De Moura, executive]

Fantastic. Thank you so much for your participation, for your questions. As always, Rodrigo, Claudia, Matias and I are always available for you for any questions that you might have. And we will see you on our next conference call. Bye-bye.

[Operator]

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