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Edited Transcript of ITAUCORP.SN earnings conference call or presentation 1-Mar-17 3:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Itau Corpbanca Earnings Call

Santiago Mar 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Itau Corpbanca earnings conference call or presentation Wednesday, March 1, 2017 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Milton Maluhy

Itau CorpBanca - CEO

* Claudia Labbe

Itau CorpBanca - Head of IR

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Conference Call Participants

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* Jason Mollin

Scotiabank - Analyst

* Diego Ciconi

Scotiabank - Analyst

* Sebastian Gallego

Credicorp Capital - Analyst

* Nicolas Riva

Citi - Analyst

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Presentation

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Operator [1]

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Thank you for standing by, ladies and gentlemen, and welcome to the Itau CorpBanca conference call on the fourth quarter 2016 financial results. We have with us Mr. Milton Maluhy, Itau CorpBanca's Chief Executive Officer; Mr. Gabriel Moura, Itau CorpBanca's Chief Financial Officer; and Ms. Claudia Labbe, Itau CorpBanca's Head of Investor Relations.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today.

We now pass the floor to one of your speakers for today. Ms. Labbe, please go ahead.

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Claudia Labbe, Itau CorpBanca - Head of IR [2]

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Thank you. Good afternoon. Thank you for joining our conference call for our fourth quarter 2016 financial results. We would like to remind you that all figures are presented in Chilean pesos, unless otherwise stated, and that our remarks may include forward-looking information and our actual results could differ materially from what is discussed.

In order to allow for comparison with previous periods, historical pro forma information of the consolidated combined results of Itau Chile and CorpBanca deconsolidated our former subsidiary SMU Corp., which was no longer considered strategic as of June 30, 2016, and excluding non-recurring events for the periods prior to the second quarter of 2016 is presented in the management discussion and analysis presentation.

The pro forma income statement has been calculated as if the merger occurred on January 1, 2015. The pro forma information presented here is based on the combined consolidated historical unaudited financial statement of each of CorpBanca and Itau Chile as filed with the SBIF; the deconsolidation of SMU Corp unaudited financial statement as filed with the SBIF; and the exclusion of non-recurring events.

The pro forma combined financial information included in the MD&A presentation is provided for illustrative purposes only and does not purport to represent what the actual combined results of Itau Chile and CorpBanca could have been, if the acquisition occurred as of January 1, 2015.

Finally, I would like to draw your attention to the changes that we introduced to be managerial income segment in the fourth quarter 2016, include the adoption of managerial reclassification, complementary to the tax of hedge. Please refer to page 7 of our report for the details.

Now, Mr. Maluhy will continue with the presentation.

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Milton Maluhy, Itau CorpBanca - CEO [3]

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Good morning, everyone. Thank you Claudia. So today I will go through a very broad agenda, where we can talk about the results in a -- very specific items from our integration process and business model, governance, results, and I will talk a little it at the end about the next steps, what we're going to be taking in 2017.

So, moving to the next slide, the first thing I'd like to wait here and call your attention is that the [important strategy] CorpBanca has for Itau Unibanco, in which we have been [responsive] here for what we call the expansion of Itau in the Andean region, which is a major project that Itau Unibanco has abroad, and we are responsible here for the bank in Chile, the bank in Colombia, we have a bank in Panama and also we are responsible for the [office] in Peru.

And moving to the consol loan portfolio there from Itau Unibanco, you may see that Itau Unibanco has $150 billion in consolidated loan portfolio and we are responsible for managing 31.4%. So it represents roughly 21% of Itau Unibanco's consolidated loan portfolio, which makes us a very relevant for Itau Unibanco's strategy within Latin America.

Moving to the next slide, maybe actually you'll see here some of the efforts we've made in the year of 2016. One of the main tasks I had [as CEO] restructure all the executive committee of the Bank. As you can see, we have not only a strong executive committee, as well we were able to make a very strong corporate governance, not only in Chile, but also in Colombia. We have a strong team, in our belief, I would say, which is a blend of different skills. We have a blend of different origins and different experiences. So, you can see here that when we move to the CFO position, marketing and product and also in operations and technology, we were able to bring fairly good executive from Brazil, and also very key areas of the Bank, with CRO, all the retail business. And on the legal side, we were able to bring very good talent from the market. And in two specific areas, in the human resources and also in the wholesale area, we were supposed here to promote talent that we had within the Bank. So I would say that we've now a very strong team.

And talking about Colombia, specifically about Colombia, the major change we made recently as for (inaudible) this year was the change of the CEO. We invited a very well positioned executive (inaudible) Unibanco, Alvaro Pimentel, who joined us in the past two months and Alvaro now is in charge of the Bank in Colombia. Alvaro has 10 years of experience in Itau Unibanco, and we do believe that his experience in working in many different areas in Brazil would be very helpful for the tasks and for the vision we have for Colombia for the next years. So, Alvaro will be a very important executive to add on our team. And also when we move to the Colombian team, it's very important to mention that we changed a little bit the governance and now we have some straight lines with us. You can see that on the CFO line, with CRO and also the Treasury. And also we do have a straight line, which is related with the [single] integration platform. Actually, you all know CorpBanca and Helm is two separate banks in Colombia for many years, and we put a huge focus on that. We will be touching that later on in our discussions here. But, nowadays Luis Rodrigues used to manage all the various operations and technology here. And Luis is always perfect for this project in Colombia. And I think we have important improvements on that and we are still going to be focused on finalizing the implementation.

When we are talking about the Board, you can see on the Chilean, there is no much news, though, we had some changes in our Board of Directors, as you can see. We have a new Director join us. We just made an [interesting call] in the local market here and also seeing that Andres Bucher now join us as a Board member. But you can see that we have a blend of important executives, very well experienced. And we do have a flavor of Chilean executives or Chilean persons, and also we do have some New Zealand executives (inaudible) Board here.

When we move to the Colombian Board, the major change we made that I am now the Chairman of the Board in Colombia. We had to step in and to be more close to the local coalition, as well we invited Gabriel and Rogerio Braga, two Brazilians, (inaudible) executives in Chile to join us in the Board of the Colombian Bank. So, now we think we have a very strong governance.

Moving to the next slide, I would like to mention that we have some [expenses] here that we need to reinforce. The first one we have to mention that we are working with a very well positioned, I would say, liquidity coverage ratio, which is very aligned with International standards. In the Chilean market, we still implemented a model in the local market. We've been sending to the (inaudible). So from that, internally speaking, (inaudible) internal models that we've been working with elsewhere above 100%, will put is in a very strong position in terms of liquidity.

Also, it's very important to reinforce all the work we have been doing in the risk perception that the market has about us. We were able since 2016 to place more than $2 billion in bonds in the Chilean market. We've been doing that for a long-term period and you can see for the spread over [three] years that we have been decreasing the spread, and in the last issuance we have been able to place bonds from 5bps to 10 bps or 12 bps above the main competitors that we had. So that means that there is a very, very heightened perception of the (inaudible) in terms of risk, which put is in a very competitive environment. So we are able now to compete in a very different way.

Also, I would like on the next two slides to mention and reinforce the capitalization level that we do have. As you can see, excluding the goodwill and adding the subordinated debt, we achieved a 14% of Basel ratio; this is Basel 1, but in fact that put us in a very competitive capitalization situation. So that means that we are able not only for liquidity, funding cost, but also in terms of capitalization, we are very much prepared to have a strong competition in the local market.

And also, we do have a guidance here that we will be working in terms of capital levels. We've been working with the worst or the highest of the two, either the 110% of the regulatory minimum, or the average of the three largest peers that we have, which is 13.6%, and in this half year are going to be above those limits. So this is certainly our guidance in terms of capitalization that we need to pursue.

Moving on, I would like to comment on some change about the business model and integration process that we are working on. Going to the next slide, we are here going to the next page, we are in page, just to confirm, here the page that we talk about the branch migration and IT platform optimization. It's important to mention that we had two milestones as we began. The first one is the milestone of [LD1], which I think we did pretty well in terms of having one balance sheet, one credit view of the portfolio, and also one trading desk as well. And also we migrated to the second milestone, which is the migration and also implementing a segmentation model. We are going to talk about that later on. And we are right there in the second milestone. As you can see in the right-hand chart, we migrated around 32 branches since [LD1]. We still have around 40 branches to migrate and this is very important to mention that it's not a simple migration process. During the process, we decided to implement very strong segmentation policies and it is very important for the new business model that we're going to be having, obviously for the future of the Bank. So that's why we at December (inaudible) in the process, so we could learn from the 32 migrated branches, and to be very cautious to guarantee that we will better for the second phase to follow that optimization, which should start in May of this year. We are working on that since December to understand what are the good things we did, what things that we could have done better. And, of course, we always have some things to learn. We are learning with that to make a better process, of course, from a client perspective and a former Bank perspective as well. We should be beginning it in May and we do believe that year-end, we should be done with this process.

Moving to the next slide, I was talking to you about the segmentation. As you all know that it's very key to our Bank to have a very assertive and a strong segmentation model. We've been working on that since the first launch of the Bank [capital level 1]. And we made major changes here, I would say, on the Company side and the Corporate side. What we did, we created segments and nowadays it's managed by the retail business, which is a leading market, I would say. It's not a [lesser] lead, what I would say, from companies from $1 million to $8 million in revenues, they are managed from the retail perspective and this is an important change that we made. And then what we call wholesale comes from $8 million, whatever company we have here in our portfolio. But the most important change we made, I would say, is in individuals, as I feel this had let's say four segment, private bank, preferential bank, retail bank and condell. But we tried to change a little, and probably personal bank segment, which is a completely new way to approach the local market. We used to have one size fits all model in CorpBanca and with Chile Itau, and now we do have the private institutional bank strategy, which is more an affluent way of talking to our clients. This completely reinforces our value proposition, where you have a very studious manager, you have an credit line, you have a different way of interacting with the Bank and this is the personal bank. You should have around 28 to 30 personal bank branches, which is very important. And also you should have around 38 corners of personal banks, we feel, where we qualify branches. And also we have the retail branches -- Itau branches. These are more cost-efficient way of serving our clients. We've made, during the process, a lot of focus groups talking to clients, understanding their needs. So, again, at the end, we came out with these two segments, showing decent benefit positions, but very well aligned to the desire of our clients. And we still maintain our platform of credit, consumer platform, which is Condell. It's a very small business when compared to our loan portfolio, but it's still a business that we've been working in.

Moving to the next slide, two other things that are very important for managing the field. First of all was the franchise strategy. This is a strategy we've been developing in Brazil for the past six years. And it has fairly effective results in Brazil, implementing this model. And we are implementing the model here in Chile, where you have the area -- much more focus in watching this strategy, the evaluation processes, the alignment with all the products area and we just have a very focused retail banking. And (inaudible) now we are able to implement this model. And I think we will be seeing important achievement for our sales picking up.

And also moving to the other pillar that I would say from our strategy, which is the digital banking strategy that (inaudible) had a lot of improvement in the past year. So now we believe, I would say, our product (inaudible) digital banking. We are able to start this agenda, even though with us very, very focused in we called the merge and the integration process. Very few (inaudible) it's parallel agenda, which is our digital strategy. And we are very focused in branches and our channels, and [we face] the experience of our clients and we are doing investments on that. And this will be developed in parallel to how we've been working in terms of the market. You can see that we do have achievements -- short-term achievements, I would say. We think we are in the right-hand chart that -- number of sales we used to have with digital channels, Internet. Nearly 8% in May of last year. And now generally we achieve 38% of sales. When we look to the amount of sales, it used to represent 3%. Now it is 23%. So you can see that not only on the revenues and more sales, we also have an important efficiency variation on that and which is part of our strategy looking forward.

Moving to the next slide, I would say, that now I'm going to start the -- what we call the -- talk a little bit about the last Q of 2016 and also moving forward, talking about the full year of 2016. We can move on to the slide 13, and it is important to see here that we have the main economic variables that will create for us in our business, not only Chile, as well as in Colombia in 2016, has lowered our expectations for 2017. You see a lower GDP growth in Chile and Colombia compared to previous years and this has driven our ability to grow our credit portfolio performance. And moreover, the weaker economy has led to a deterioration in credit quality and the consequent increase in provisions. Furthermore, you can see a lower inflation in Chile and higher interest rates in Colombia that have increased pressure overall in financial markets.

For 2017, we expect a reversal on this trend. We are [cautiously] positive on growth and credit portfolio performance. In Colombia, particularly, expecting interest rates to drop and this should have a positive effect on our margin.

Next slide on the page 14, I would discuss a little bit more our managerial addressing and the results for 2016. To facilitate the understanding of the chart and to our results, we present here a managerial review. The first year of the business combination, the results of Itau CorpBanca has a number of extraordinary effects, regulatory changes and financial risk policies, an appetite to address this.

In the first line, we have the accounting results that we posted and in the third line we have a pro forma result, in which we had the historical information of those banks for a better comparison. In non-recurring events, we have a series of adjustments as you can see that are explained in detail here, on the slide as well, as on the MD&A that is available now in our website. And finally, on the last line, we have the adjustment result for the last quarter and for the year. If you then -- in 2016, Itau CorpBanca posted a managerial result of CLP38.8 billion, compared with CLP350 billion in 2015.

Now, we are going to move to the next slide and now we can discuss a little bit about the managerial results between operations in Chile and Colombia. So as you can see here, aside from the managerial adjustments, we discussed in our previous slide, we also assign to our operation in Colombia, all the revenues and costs that we eventually have in our operation in Chile regarding Colombian assets and liabilities. The main effect here is the hedge cost that we have for our investment in Colombia. Our consolidated functional currency is the Chilean peso. Therefore we had hedged 100% of our exposure in Colombian pesos in order to reduce impact on taxes, market [fees] and capital. And as a result of that, in 2015 our Chilean operation posted a managerial result of CLP78.4 billion, and in Colombia we posted a loss of CLP39.6 billion.

And moving to the next slide, we can discuss the major impacts on performance that we have experienced in 2016. I think this is very -- illustrates the loss, the situation we've had, what happened in 2016. You can see a huge increase in the loan loss provision. And the performance of our operation in Colombia explains the majority of the variance in the results that we experienced in 2016. And moreover, the lower economic activity in Chile and Colombia, as well the (inaudible) integration of the Bank [bad accounts], led us to fewer deals in corporate banking, impact on credit (inaudible). And finally, the lower inflation in Chile led to a lower income, as part of our credit portfolio, which is inflation index.

On the next slide, we discuss a little bit more in detail the performance attributed to Chile and Colombia. As you can see, we open here -- we came from Chile from CLP309 billion in 2015. You can see that we have in the net interest income line, we had an impact, mainly due to the inflation indexation, but also on the other hand, we have a better spread and mix. So that to explain a little bit about the difference between 2015 and 2016 was, I mentioned before, when we talk about the [wholesale] we had an important impact. Moreover, looking to the CVA, the derivatives with clients, sales of portfolio is having certain impact as well. But the major impact that we have seen in this comparison is the provision for loan losses; as we can see here CLP94 billion.

When me move to Colombia, I would say that we had two major impacts. The first one is the net interest income. As you all know, we had a mismatch in the interest rate portfolio in the balance sheet in Colombia, which was huge impact by the increase in the interest rate in [debentures], although we did see a slowdown in a reduction cycle in the interest rate that we still had a huge impact in our net interest margin. And also when you look to the provision for loan losses, we explained another part, this is from the Chilean perspective, the way we see in the consolidated basis. So, actually these two effects mainly explain the (inaudible) that we had in Colombia in 2016.

Moving to the next slide. And first of all, in the two charts in the slide, we can see that in our loan portfolio, both in Chile and Colombia, they present a year-over-year decrease of close to 2.5%. As a result, we lost market share in both markets, as we were more cautious on credit concessions and also a little bit more focus, of course, looking to the internal process. And furthermore, our portfolio has a higher concentration on commercial loan than that of our peers and therefore, we are more cyclical on growth. And for 2017, we are cautiously more optimistic on growth, as the integration of banks should bring, I would say, positive results.

On the right-side of the page, we have the credit portfolio performance. We continue to see a deterioration in the NPL in Chile, specifically in our retail portfolio. And if in a merge, we had to implement credit provisions, it's an internal mortgage that we are working on as well. Any retail that we'll recognize, the probability of the full projects of a given client that has products on both banks. So we had some changes in the regulatory world. We had some internal models that we had to implement, although there was agreed with the (inaudible). But we also had an opportunity to review on our commercial portfolio in Chile and Colombia. We have little exposure, as we have with the rates and provisions and all aligned with our portfolio to the risk policies of Itau Unibanco, and it's based on all information we had available at the end of 2016. And as a result of that, we saw a major increase in provisions. So this was very important that we are very, very focused in view our credit portfolio. As you all know, we are more commercial-oriented, because of the mix we have and we are more impacted for events that may happen in the corporate market. So we made a review that we do think we have, I would say, enough provisions for what we [maintain] for the next years. But as you well know, the corporate business is more related to events, and new events may arise. But anyhow, for 2017, we do expect lower provisions compared to 2016. But we still have to keep in mind that our portfolio is a little bit exposed to corporate. So it may bring us surprises that we are not foreseeing at this moment.

So talking about the next steps, just to give you a few things that we are going to be focused on -- controlled in Chile. We should complete the branch migration and the client segmentation as of December 2017, which is a major project for us and I do think that whenever we do finalize that we should be able to start working in the third milestone that I mentioned in the first [two] slides, which is focusing on the products integration platform, which should bring us lot of synergies looking forward, especially in 2018.

Our main focus is focus on topline and client satisfaction. I think we had achieved internal work last year. What we believe for 2017 is [our] commercial teams are very focused on the client, very focused -- although we do have a slowdown in the economy, they are very focused building the pipeline of clients, very close to our clients. So we are very focused on topline and [we too] working a lot to defend our reference in terms of client satisfaction, this is for May 1. We are going to be focused on what I mentioned before, which is our digital strategy. We did earn a project. We do have, I would say, two things on milestones that we achieved this year. They used to have many things to be there and this will be part of our (inaudible). And not less important, these people are focusing in the implementation of the synergies. I would say that for this year and 2016, we had around 700 people -- employees that add to the Bank. And we are still working, and we still have many synergies to achieve on the operational side and the technology side. So many things to be done on that as well.

When we move to Colombia, I think this is a major event for Colombia. Itau is not present in Colombia nowadays. We do have a second floor bank -- I would say a wholesale bank there. So the idea is to introduce the brand and we are planning to have that by May or June 2017, we should have this implemented. We should migrate the Helm branches and brand to Itau, and this we calling the Itau (inaudible) just a change in the brand. We won't move to that base implementing the new model. We try (inaudible) we define a business model for wholesale and retail and we do believe that we should implement, what we do believe in terms of (inaudible) in retail and wholesale in 2018. And also because of that we should complete all the system integration. As you all know, for us this is the main problem during the past years, but we are very focused on that. We should initiate the migration of the clients as of May or June of this year. The planning -- we should migrate all the Helm clients to the new -- I would say Itau look and feel in our core system and we do believe that we should be able to initiate the migration of the branches from CorpBanca in August and it should take us a few months to do as the same way we did in Chile, the ways. So that's why we do believe we should be able to finalize this process by June of 2018.

Well, this is our agenda that I would like to discuss with you today. And now myself and Gabriel, we are very open to you for questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator instructions) Jason Mollin, Scotiabank.

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Jason Mollin, Scotiabank - Analyst [2]

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Related to Itau CorpBanca's loss of loan market share, you talked about a more cyclical loan book due to the higher proportion of commercial loans. You mentioned the focus on the integration process. And lastly, perhaps a more conservative loan origination policy in the current economic environment. Can you talk about the loss of market share due to client overlap, was that also part of the reduction in loans and the slower growth in the market? And if we look into 2017, how do you think that could be different? Do you think that that cyclical nature of the book, you anticipate that the commercial side could return to growth and you could actually gain some share there, or maybe a simpler way of putting it, what segments in Chile do you expect to grow at the highest pace this year, 2017? (technical difficulty)

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Operator [3]

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Mr. Mollin, please repeat your question.

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Jason Mollin, Scotiabank - Analyst [4]

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Sure. I was talking about the loss of loan market share at Itau CorpBanca and you referenced that part of that can be attributed to, one, the more cyclical nature of your loan book, due to the higher proportion of commercial loans. You talked about the focus on integration and conservative loan origination policies in the current economic environment. So my specific question was, what share did you lose due to client overlap, if any? And looking at 2017, the rest of this year, what segments in Chile do you expect to grow at the highest pace? Do you think that there could be some cyclical recovery this year and in fact you could gain share, or is it too early for that? That's my first question.

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Milton Maluhy, Itau CorpBanca - CEO [5]

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We were cut off, sorry about that. But just to jump in, in your question, I think it's sort of many of the points that you arrived. So, first of all, we had planned, we knew we were going to lose market share in 2016 due to the merge. It's expected to happen that you cannot do so many focus -- so much focus on the commercial side and the [origination front] and also focus on integration, which is very complex. So this was, I would say, part of the plan that we had.

Moving forward, we cannot forget that we are still in a merge, it's our very important merge in terms of complexity. We should have two years more, I would say this is a two years merge. So we have two years more to achieve all the goals that we plan for the merge. But we focus, as I mentioned, next is perhaps is to focus on topline. That means that we are much more focused on profitability, than on market share, to say like that, but still market share for us in some segments are very key to show how the commercial business is performing.

So on the commercial side, where we have a high portfolio, we do have a review in our credit appetite. We are used to work with some credits that we have important concentrations in terms of [tickets]. And I think for the balance sheet, if we have to look forward, we have to be a little bit cautious on that. So this may impact a little bit and differentiates the credit appetite that the Bank together used to have. And also, we are very focused on maximizing the return on capital that we have on those transactions, not only doing transactions, we are very focused on the market share that we may have than on the commercial side. On the retail side, we do have a plan to recall and to defend the market share we have. We've seen some evolution within specific products. We are much more focused here on the branches business. They will be managed in the way we approve the incentives, the way we chase and discuss all the KPIs we have implemented (inaudible) of the segment. So I wouldn't say that my expectation would be to go market in 2017. But, of course, we're going to be working, if possible, if we feel comfort from that without changing our credit and risk appetite, to recall specific market shares, where we do believe we should be focused on growing the Bank.

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Jason Mollin, Scotiabank - Analyst [6]

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So, I mean, maybe kind of a corollary to the question on the merger. The first year of the integration process and merger is done and maybe you can talk about the costs. You're showing these merger related costs and expenses. At the end of the year one, were these a greater -- would you want to change your expectation for the costs related to the merger over three years, or was 2016 a higher percentage of those expenses than initially thought, just to get a sense of this extraordinary line item, how should we expect that to evolve in the next year or two?

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Milton Maluhy, Itau CorpBanca - CEO [7]

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We have two guidances when we were talking about the merger. One was the costs that we thought -- that we plan that we would have within integration process. And one has more to do with the synergy, okay. I would say that most of the -- we are -- I would say, ballpark, is to working with the same numbers. Of course, we had planned to finalize the branches migration by the year end of 2016, which put us in a better situation in terms of achieving faster the synergy, were due to client orientation and much more concern about the future of the Bank. We postponed this migration, a lot of focus on the client relationship that we have, preserving our clients, the guarantee that we have a very smooth process; for that we postponed the migration and that has an impact, not in the size, I would say, of the synergy that we are expecting, but when we should achieve the goals that we planned at the very beginning. So I would say that we have, for this year, an important synergy in terms of the branches and this is enabling us benefit in terms of synergy. Don't forget that last year, we had a very important synergy in terms of headcount, not only 700 people, but I would say the most expensive ones, when you look to the structure of the Bank. And also we did have those plans that we have agreed with the employees, we called a syndicate. And also, that means that we had an important cost last year in terms of [remuneration] that we don't believe, because when we look to the total comps expectations, looking forward, we do have an important synergy on that. And next year will be key for this process, because finalizing the project of migrating the branches the next year is key, because it's not simple to go to the third milestone, which is the integration process of all the systems, is not only simply path of changing from one system to the other one. But we do have here to organize the data, we have to plan a lot, we do have to hold important amount of people within the Bank. So 2018 will be key to achieving the synergies. But we are very focused on that. This is part of our growth and we do believe we're going to achieve the milestones that we propose to make in the very beginning.

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Operator [8]

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Diego Ciconi, Scotiabank.

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Diego Ciconi, Scotiabank - Analyst [9]

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I just wanted to get a better sense of the provisioning level. From what I understand, most of the provisions made in 2016, should not be expected to repeat. But you also mentioned that you've downgraded some large clients. So what is the level of cost of risk that we could consider normal going forward? And second question, the regulator fine of about CLP21.7 billion in 2015, I remember that there was some type of overrule on that fine and you probably could get that back. So I was wondering what's your expectation regarding this fine and if this could be reversed this year? Thank you.

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Milton Maluhy, Itau CorpBanca - CEO [10]

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While talking about the provisions, I think that it's very important to mention that we have to separate what we have in the corporate business and what we have in the retail business. On the corporate side, there were events. We had to provision important credits that we had here in our portfolio. Some of them were public. We don't, of course, talk about individual clients, but in the case is (inaudible) which were all mentioned before, was one of the cases that we had an important seat in the Bank and also we received the stocks on that, that has a bad debt recovery rate, but we're still managing the stocks that we have. But we had a hit at the end of the day, which was not small.

On the other corporate side, as I was mentioning before, we had some phases or some projects we were participating. This is an important ticket. Some of them had some impact due to internal issues, or some environmental issues and for that reason, we looked to our portfolio, not only project, but corporate clients as well. We do have a few that we thought that should have a higher provision to reflect the real situations of those companies. So we were very -- I wouldn't say, conservative, and not strict, but we did a very long work, making credit [after credit] in the corporate side, and reviewing the provisions we had and we thought we still have to do more provisions on that, more aligned to our credit appetite and Itau Unibanco's policies, to say like that.

On the retail side, I would say that we had a major impact due to regulatory provisions definitions -- new regulatory models. As you know, the majority of the banks in Chile anticipated those provisions for December 2015. In our case, neither Itau or CorpBanca have done that. So we had an impact on that, due to some mortgage provisions that we have to make in our portfolio for the mortgage credit that we had, say, loan to value above 80%. This is one part of the hit we had. And the other one was related to the drag that we should do among clients and also the change in the model there after 90 days of our clients in NPL. In non-performing loans, we have to take (inaudible).

So summing all of that, those were the major impacts we had in terms of provision on the retail side. Looking forward in 2017, we believe we're going to be working with, say, provisions much lower than we had on the corporate side. We do believe we have now a very good and well positioned -- accordingly provisioned portfolio, but we still, as you know, we are talking about the Bank, we don't foresee any major event. That's why we do believe we're going to be -- we could have more provisions in 2017. And also if we will be able to work in some -- specific clients that we provisioned in 2016, we may be able to reverse some of the provisions that we made in 2016. So, this is something that we are working on that a lot. We may have new information arising for market, from the market that may move us in that direction.

And on the retail side, we saw in the last quarter (inaudible) growth. We thought, some from the new perspective, we may see the highest and also due to the slowdown, the unemployment hit, we may see a little bit worse behavior in the very beginning of the year. We may see that, but we do believe that we should stabilize the provisions that we have, as well the retail portfolio, although in 2017. We are not disclosing it here what level of loss in respect to each portfolio, or guidance, but we do have an expectation of the having lower provisions for 2017.

About the second question that you made about the specific situations, we don't have a guidance on that. We are not commenting on that to be very honest. We do have the provisions made in our balance sheet. As you know, the loss that we had, or the trend we had impacted our balance sheet, I would say, last year, our P&L, I would say in 2015. And now, we are still waiting for a decision. Whatever the decisions are, we are going to take the according measure that is necessary in that, but we are not commenting on these specific items.

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Operator [11]

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Nicolas Riva, Citi.

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Nicolas Riva, Citi - Analyst [12]

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I got two questions on the Colombian business. The first one on Odebrecht. So last week, the infrastructure agency in Colombia terminated the concession contract for Ruta del Sol. One of your main competitors in Colombia, Grupo Aval, disclosed already what was their exposure in terms of debt to that concession. And that concession actually costs about $800 million in debt. We know 50% with Grupo Aval, but we do not know which are the banks holding their 50%, the other $400 million. So, any color you can give us in terms of your exposure to this concession, to Ruta del Sol provisioning made for that exposure and in your best case scenario, how much you would recover from that exposure?

And the second question, still on Colombia, so you made the announcement recently that you're not going to buy right now the stake that Corp Group has in CorpBanca Colombia. And my question is, how do I read that? Do I read that as being you are less optimistic right now on the outlook for Colombia or was that really more based on valuation, which was set up at the time of the merger? Thanks.

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Milton Maluhy, Itau CorpBanca - CEO [13]

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Well, let me go to the first question first. Talking about Ruta del Sol, which is a public event that everybody knows. We are not disclosing about individual clients, but we can say we are not between the top three lenders in this credit. It is a project. We do think that we have according to our portfolio and exposure that don't worry us in terms of a major impact that we may have on that in provisions and so on and so forth. But having said that, we've been working a lot very close to this specific project. We've been talking not only with the local team, but I have been to Colombia in the past weeks. We've been talking about project, just to understand. Moreover, not only because of the impact of this specific case, but how that could impact the appetite of the Bank for the 4G project that Colombia has.

So the outcome of this project is key, not only for the case itself, but also for the appetite for the banks we have in Colombia for project coming from infrastructure and because of that we do believe we should have a positive outcome on this case, it's a matter of time. We know that the process is [subvention]. We've been talking to the regulators, talking to the government, talking to the private sector, or the owners, I would say, of the concession nowadays. We do believe that everybody is working for a positive outcome. And I don't think we are going to have major impacts on that. This for the first one.

For the second one that you asked for the postponed -- it's important to the question, because I can clarify a little bit about what we did. To be very honest that doesn't change anything the appetite that we have in Colombia, because as you can see, we do have now [about] 66% of the Bank. In an economic perspective, though we still have an obligation to buy, even though it's 2022, we still have an obligation to buy the other 12.8% in shares that Corp Group owns. So that means in an economic perspective, we do have a 80% or almost 80% of the Bank. The reason of that -- of doing the postponement of this acquisition has much to do for an economic planning that we do from our side. We thought that as we do have a huge work to do in Colombia as you can see from the figures that we presented today and the changes we are making on the administration of the Bank, we do believe that in five years to say -- to be reasonably -- we should be having a completely different Bank with a completely different profitability. That means that as we don't have nowadays the approval of the regulators to buy, because we do have to go through internal process. And now, Corp Group has the option. If one of the [plan] is to lease the bank in Colombia, as we agreed in the shareholder agreement with the minority shareholders that we had, this was before the merge, I would say. Core Group has the option nowadays to sell in the market, whenever we're going to be able to lease the bank in Colombia, we have the right to merge, if the offer -- if someone offers a price to buy those shares and whenever they offer us to buy (inaudible), and if we do execute the (inaudible) we diminish the amount you have to -- we reduce the amount that we have to buy in 2022. And if you sell to the market, what happens is that we reduce the amount in 2022 as well. So this don't give us a capital pressure right now. These acquisitions would provoke us, I would say, an impact and also we wouldn't be able to create, I would say, a possibility of having more liquidity in the Bank in Colombia, as now all these stakeholders, whatever we are able to lease the bank, it's not a qualified IPO, the actuary stakeholders may be able to sell your shares. We've been hearing from the minorities and they have appetite to sell shares and that we would like to have, I would say, market price to understand where is the real price of this Bank when comparing to other banks, local banks, there are at least within the Colombian market.

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Operator [14]

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(Operator Instructions) Sebastian Gallego, Credicorp Capital.

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Sebastian Gallego, Credicorp Capital - Analyst [15]

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I have three questions, the first one related also to 4G projects in Colombia. We know that you guys have some exposure to some other 4G concessions. Can you talk about what's the total exposure that Itau CorpBanca has particularly on the first wave? The second question comes from -- in terms of margins in Colombia. What do you guys expect in terms of NIM in Colombia, given a potential decline or cuts by the Central Bank rates? And the final question coming from me is related to the risk coming from Helm Bank, for Helm Corporation. You mentioned that you expect the integration in Colombia by 2018. But is that considering the potential outcome regarding the lawsuit that was filed by Helm in New York? Thank you so much.

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Milton Maluhy, Itau CorpBanca - CEO [16]

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Talking about the infrastructure projects, yes, CorpBanca used to be always an important player in all reaches, whether it's infrastructure. And I think because of that, we have an important knowledge and we have a very strong team that work in structuring those projects. We don't have any concern, we don't give any -- we don't believe or we don't give any public information about of what is the size of the credit portfolio, which is related to infrastructure, but we do have an important, I would say, credit-related portfolio in infrastructure. We are pretty much working very well with all the projects we have there. We don't have any specific concerns. The one that recently was the one that I just answering the previous question is, we think about people itself. We still think we're going to have a positive outcome. So we see that all the stakeholders, especially the government, is very, very focused to create a right environment for investing in infrastructure in Colombia. And of course, due to the need of trust, we do believe that the Bank -- the system has appetite to freeze and to finance those projects. That's why I mentioned before that Ruta del Sol in certain ways, these are major events and [civilization], I would say for the market, because if you do have a positive outcome in a situation like that, that means that we are fairly well placed in concessions (inaudible). So we don't have a specific concern on that. Talking about the margins and the NIM, as you well know and we disclosed that in the previous calls, we do have a mismatch in our interest rate. We were a little bit short I would say in the funding and long, I would say, in the credit portfolio and interest rate. From a funding perspective, and this is very, very important to be mentioned here, (inaudible) has showed in the consolidated basis that we are working above 100% in the LCR which is international standard.

In Colombia, we are doing the same thing. So we have a very strong liquidity situation at the Bank nowadays, as we we're working with the same level of liquidity that we work here, that we work in Colombia, following not only basis pre-standard, but also following -- I would say, Itau Unibanco external in terms of risk appetite and liquidity risk. Now this is from one side. From the other side, of course, as we planned before, we've been seeing two reductions in the interest rate in Colombia, 25 bps at the year-end and then 25 bps in the last meeting and we do have a forecast that the interest rate may be reduced to 5.5% by year end, which is what our macroeconomic research says. We are looking something between 5.5% and 6%, this is where is the majority of this news that we received from the market. So this should have a positive impact of course in our NIM. We cannot precisely say exactly what is the amount in the NIM that we should be benefiting of this reduction in interest rate, but we should have an important impact, because some of the, I would say, mismatch that we had, we had it in the long-term deposits, the long-term bonds, working in the fixed income market risk that we had to have a market risk more adjusted to our size. But even though we still have the balance sheet prepared to take advantage of the situation, but we have -- as we had a huge impact in 2016, we have a lower impact in 2017, but still we have an impact on the accounting side, because it was a mismatch go through the banking book. So we thought we should still have an impact in 2017. We should be clear of an impact in 2018. But we are going to be better than the year 2016. And also talking about the Helm Bank, it's a question that the two discussions are not related, just to be very focused -- here to be very precise, the Helm branches that we have in the local market, we do have a market license or a marketing brand license with the Helm Bank, Helm Group. We are working within the plan. We've been focusing on changing the brand, and this won't change anyhow, because it's a decision that it's up to us that are managing the Bank. So we are focusing Helm in May, because we are going to be working with the same core system that Helm has, which is the Phoenix, and because of that we should migrate Helm first, then CorpBanca later. The provision of projects will be opposite. We are going to be migrating CorpBanca first and Helm later, because we were moving to a third quarter system, which we decided not to do it. So the Helm has nothing to do with the lawsuit and the lawsuit that we have in New York is another trial. It has to do with the discussions between shareholders, in this case, part of the discussions that Itau CorpBanca, of course, is part of that, because it's the owner of the bank in Colombia, but it has more to do with the original transactions that we made than to any changes, or it won't impact and we haven't seen an impact in the normal course of the business bank in Colombia.

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Sebastian Gallego, Credicorp Capital - Analyst [17]

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Just a follow-up on that, and I know those two things might be unrelated, but just a follow-up on that is that, do you consider that beyond the system integration, do you think Helm is also -- will be willing to change or to migrate the brands to Itau, or are they going to hold back on that or is it just a decision of Itau CorpBanca that you guys just can't go ahead and do it?

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Milton Maluhy, Itau CorpBanca - CEO [18]

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Yes , it's a complete decision of Itau CorpBanca, the brand is there and we own the bank. We have one bank two brands, so it won't impact on anything to be very, very precise here. And it's a completely decision of Itau CorpBanca, it has nothing to do with Helm in this case.

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Operator [19]

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There are no further questions, sir, please continue. (technical difficulty). That does conclude our conference for today. Thank you all for participating. You may now disconnect your lines.