Itaú CorpBanca (ITCB) Management on Q1 2019 Results - Earnings Call Transcript

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About: Itaú CorpBanca (ITCB)
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Earning Call Audio

Itaú CorpBanca (NYSE:ITCB) Q1 2019 Results Earnings Conference Call May 2, 2019 11:00 AM ET

Company Participants

Claudia Labbé - Head of IR

Gabriel Moura - CFO & Corporate Finance Manager

Conference Call Participants

Jason Mollin - Scotiabank

Jorg Friedemann - Citibank

Sebastián Gallego - CreditCorp Capital

Alonso Aramburú - BTG

Nicolas Riva - Bank of America

Operator

Good morning, my name is Jessa, and I will be conference operator today. At this time, I would like to welcome everyone to the Itaú CorpBanca First Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Claudia Labbé, you may begin your conference.

Claudia Labbé

Good morning. Thank you for joining our conference call for our first quarter 2019 financial results. 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 in our managerial model that we adjust for non-recurring events and we apply managerial criteria to disclose our income statement.

Beginning the first quarter 2019, we are disclosing our income statement in the same manner as we do internally, incorporating additional P&L reclassifications, Gabriel will refer to recent changes in more detail ahead on this presentation.

Now, Mr. Gabriel de Moura, Itaú CorpBanca's Chief Financial Officer will continue with the presentation.

Gabriel Moura

Thank you, Claudia. Good morning, everyone. Thank you for joining us for this first quarter of 2019 conference call. Today we will be going through our results for the first quarter and reviewing our perspectives and drivers for the remainder of this year.

So let's start with the Slide 2 where we show the highlights of our performance in the quarter.

We ended the first three months of the year with CLP 34.2 billion consolidated recurring net income, which represents a 6.9 recurring return on tangible equity. If you look at the bank in Chile on a stand-alone basis, it represents a result of CLP 29.2 billion, a managerial return of 7.3%.

Although, these numbers mark a drop from the performance we have seen in the previous quarter, this is the result of both what we believe to be a transitionary macroeconomic effect and seasonality in range of to our business.

As we go through to show you throughout this presentation, our commercial performance has been sustaining a positive momentum and our disciplined and efficient use of resources have been showing satisfactory results.

Moving to the Side 3, let's talk about macroeconomic environment in Chile and Colombia, and how it evolved since our last conference call. In Chile, economic activity was relatively weak in the first quarter of the year, both in the mining and non-mining sectors. Despite of that, we still expect the growth for the year to be near potential levels at 3.2%, boosted by investments, while low inflation and retention of monetary stimulus will favor the consumption environment.

The main surprise to our initial call so far was a persistence of a downside inflationary pressure in the quarter which affected our banking book results as I will detail later on. Although, we view this low inflation as transitory, it gave way for the Central Bank to retain monetary stimulus for longer.

Therefore, we have slightly reduced our expected inflation for the year from 2.7% to 2.6% and review the year end policy rate down 25 basis points to 3.25%, which means we expect only one additional 25 basis points hike from the current 3% near the end of the year.

As for Colombia, inflation for the first three months of the year also came below expectation, which has led the central bank to keep the overnight rates stable at 4 - 1/4%. Now we expect inflation of 3% for the year from the 3.4% we have before, which leads to way to maintain interest rates as they are from the remainder of the year from the 50 basis points increase we initially expected and softens the pressure on our banking book's results. In terms of loan growth, we maintain our view of a market expansion between 8% and 10% in both countries.

Now moving forward, let's talk about how the bank performed in Chile in this first three months of 2019. On Page 5, we can see our P&L for the first quarter of the year. First of all, I would like to highlight that starting this quarter we have improved the presentation of our P&L, converging fully to the format presented by Itaú Bank, this managerial financial model reflects how we measure, analyze and discuss financial results by segregating commercial performance, financial risk management, credit risk management and cost efficiency. I believe this form of communicating our results will give you a clear and better view of how we fare under these different perspectives.

Now looking at the quarter, activity with clients remained consistent. As in the previous quarter, consumer loans maintained a double-digit annual growth rate, and commercial loan sustained a gradual recovery towards overall system growth rates.

Nevertheless, results were negatively impacted by unfavorable conditions in financial markets and lower inflation, as I will get into details later on. Cost of credit came in line with what we expected for the quarter and our noninterest rate expenses, our cost base, expanded only 2.1% year-over-year, reflecting our discipline in cost management.

Now moving to Slide 6. Let's review it more detail our financial margin with clients. As our overall portfolio growth continues to pick up so does our margin with clients, which grew to 3.8% when compared to the same period last year, benefited by higher volumes and a higher-yielding mix as retail continues to lead expansion.

If we adjust for the results from the sale of corporate real estates that we have recorded last year and the impact of the adoption of IFRS 16, both of which, affect our working capital, our year-over-year increase in financial margins with clients would have been closer to 8%.

When comparing to the fourth quarter of 2019, the 10.5% reduction that we see is basically explained by the results from the sales of student loan portfolio that is usually recorded on the last quarter of each year, and by lower number of calendar days in comparison, which affect the approval of most of our loans and deposits.

Now let's move to see how our credit portfolio has evolved through the quarter. On Page 9, we see our portfolio in Chile grew 6.2% year-over-year showing a gradual convergence to the overall market place. This comes as a result of the dynamics we've been highlighting over the previous call, which is our commercial loans, which have been responsible for most of our underperformance since our merger, continue to converge market place as we concluded the reduction of noncore exposure and further strengthened client relationship and service level.

Our consumer portfolio, on the other hand, continues to outperform the overall market speed by over 20%, leveraged by a segmentation strategy and improvements in digital offer and overall client service. It should continue to lead our rebalance to a higher-yielding portfolio mix. On the mortgage front, we expect to continue to underperform in the short term as we redesign our operational model and value proposition for this project.

Moving on to Page 8, let us comment on our financial margin with the market and how it has evolved in the quarter. Here, the low inflation that persisted in the first months of the year was the main factor behind the reduction in these results for the quarter as a relevant part of our assets with our clients is denominated in the official inflation-adjusted currency, the U.S. We actively manage long expositions - loan positions in inflation in our banking book. Under the guidelines of our risk appetite and risk limit set by the Board and the asset and liabilities committee.

As you can see from the upper right-hand graph, we actively reduced the exposure throughout last year on the face of a lower inflation scenario. Nonetheless, the note repricing of the U.S. over the last three months hinder its contribution to our results in the quarter. As mentioned before, we view the downside inflationary pressure receding and expect the accrual rate of disposition to normalize over the course of the following months.

Now going forward, let's talk about the cost of risk in credit quality. Here, on Slide 9, we can see our main credit indicators. In the first quarter of the year, our cost of credit amounted to CLP 36.6 billion, which represents a 28% reduction from the previous quarter and came in line with our projections both on wholesale and on retail, despite the uptick of NPLs in the quarter. As for our perspective for the year of 2019, we are reiterating our guidance of our credit cost to average loans between 0.7% and 0.8%.

Now moving to Slide 10. We see over noninterest expense evolution. When we look over our 12-month period, our expense base grew at the rate of 2.1%. Furthermore, if we isolate depreciation and amortization that reflect all the investments we've been making our business platform, expenses have remained virtually flat year-over-year.

We always have a diligent focus on the efficient use of our resources and have -- we reiterated our belief, shared on our last conference call that we still see further space to reap synergies from the merger. As our commercial results continue to uptick, we expect efficiency to gradually improve throughout the next quarters.

Now moving on with the presentation. Let's jump to Slide 12 and go over our results from the operation in Columbia. Here we can see, for the fourth consecutive quarter, Columbia has contributed with a positive result, reaching 5.1% managerial return on tangible equity.

Although, marking a drop from the 7.9% return posted in the previous quarter, basically, on lower recoveries and credit normalizations, the operation has shown a sound improvement in efficiency and cost of credit since last year. And the main challenge now is resuming the expansion of our business and portfolio of credit volumes.

Now moving forward, let's review our perspective and the strategic drivers that we set for this year. On Slide 14, we can see our main perspectives for financial performance in 2019 that we shared with you on the fourth quarter 2018 conference call and that we are reaffirming as our current perspectives for this year.

First, as we had presented before, loan growth in Chile is picking up supported by a consistent performance on our consumer loans in gradual convergence in commercial loans to the overall market basins [ph].

We expect this trend to continue on the following quarter, leading overall portfolio growth to an end of the year rate between 8% and 10%, in line with our expectations for the system growth.

This dynamic also will contribute to expand our retail portion of our portfolio in the mix, which would further provide a higher average yield to our overall portfolio as we have been communicating before.

In terms of cost of credit, although our portfolio is still more concentrated in the wholesale credit that lead us to have a more noticeable exposure to credit events than our peers, our performance so far in the year has been in line with our estimates. We expect the end of 2019 with a cost to average loans in the range of 0.7% to 0.8%.

As for our adjusted noninterest expenses, which we adjust for the depreciation and amortization, we will continue to have diligent oversight of the use of the resources and continue to aim for a growth in line with the CPI inflation, which is an important challenge when compared to the average sector inflation in Chile.

And as for Colombia, as first quarter numbers are already showing, we expect 2019 to present a gradual and consistent improvement over last years. And stronger business volumes growth crystallizes as our main focus on this challenge.

Going over to Slide 15, let's recap our key strategic drivers for this year. As discussed throughout the presentation, growth in business volumes expansions is the top priority for us this year. And we have been delivering on this front both with consistency in consumer loans and with a turnaround in commercial credit business.

We keep a steady focus on cost controls and ways to improve efficiencies. Hand-in-hand with optimizing processes and looking for innovative ways to best deliver products to suit our customers' needs.

In Columbia, we have been diligent in credit risk and cost control. And our results demonstrate that we are focused on expanding business volumes to keep sustaining the profitability rebound that we have been presenting. Permeating all this is the focus on improving return on capital implied to every transaction as capital generation is a key to sustainable growth going forward.

Finishing this presentation now, I would like to open this to the questions that you might have. Thank you very much.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question terms of the line of Jason Mollin from Scotiabank. Please go ahead.

Jason Mollin

Hello. Good morning. My question is really on the strategic initiatives that you just talked about specifically in Columbia. You're talking about the implementation of retail and wholesale strategy. If you can provide some more color of what you're going there with the market share? I guess the last numbers I saw was around 5% on average on different metrics.

You did mention that the ROE did tick down quarter-on-quarter due to lower recoveries. If you can also give us some more clarification there what's going on and what we should expect for the rest of the year out of the Colombian operation? Thank you.

Gabriel Moura

Sure. Thank you for your question, Jason. When you take a look at look at Columbia, let's start from your last question. I think the evolution of cost of credit was quite good in Columbia, and I think that when I take a look at the numbers from the last quarter, I see the numbers. What I think, they are below the average that we are going to see this year. So the 1.4% cost of credit that we had in Columbia, I think that they were positively affected by some of the recoveries that we saw within our wholesale portfolio.

When I take a look at the first quarter, I think it's more on par on what you expect in Colombia as for cost of credit during this year, which, by all means, is an important reversion. We even take a look at historical cost of credit levels that we had in Columbia that reached at some point 3.5%. So we're talking to -- with something around 2%, 2.2% in cost of credit in Columbia.

Going forward, what I see in business is that the first three years that we had in Columbia was pretty much restructuring the business on a risk appetite, on risk policies and operationally merging the two banks and their systems. I think that we have achieved that the last quarter of last year. And now I do see us moving to a go-to-market strategy.

So when I take a look at the digital implementations that we have for Colombia, what we have been pushing through for the last three months, I'm quite optimistic with the results that we are getting in terms of the processes to opening new accounts, the processes of implementing a better app that we are integrating with the same - let's put it this way, the same app infrastructure that we have for Brazil, Chile and Colombia, we are moving with that agenda to have the same infrastructure that will enable us to do releases faster than we do today.

So I do see us moving in the right direction in terms of our go-to-market strategy. I do not quite see the resulting volumes on an aggregate basis and the reason for that is we continue to restructure a part of that portfolio, especially in consumer, due to the Libranzas, the payroll loans, that we are on the end of the process of adjusting our operation, volumes and risk appetite that we have for that.

So in the same we now in Chile, I had a negative vector for the commercial part of the portfolio as we were restructuring it. I do see that pressure in Columbia the last two years and still in the beginning of this year I do still see a pressure, a negative pressure, especially on payroll loans as we restructure that portfolio.

I think that we are at the end of the process so on a marginal basis the increases that I see from the other products they are better than I have ever seen in the Colombian bank for the last three years.

So on a marginal basis I do see an important convergence to more client-centric business-oriented practice, less focused on the restructuring on the bank and more on serving clients and growing the business.

I think that for the next quarter's we will begin to see that on the numbers on aggregate level, but I'm glad with what I see on a marginal basis.

Jason Mollin

That's very helpful, Gabriel. Maybe just a follow-up on - and that's a lot of information to digest and help us understand what's going on in Columbia. On the Chilean side, like the other banks we follow in Chile, we saw the UFA impact on the balance sheet and given the UFA exposure the impact and net interest income, how does Itaú CorpBanca about its UFA net exposure? And would there be an attempt to actually close that in periods when you think inflation would be low? Or? How actively are you managing that exposure?

Gabriel Moura

Sure. If you take a look at Slide 8 of the presentation that we just went through, Jason. You're going see on the upper right corner of the slide, there is graph with our net exposure, so this is asset plus the derivatives that we use to hedge our exposure that we have in U.S.

As you know, just on the asset side, we generate more assets, mainly because of the mortgage business in U.S., than we generate liabilities. So we use derivatives to in order to hedge some of the exposure. What you see here is the net risk exposure that we have, too. As you can see, we have within the projections and when we talked about this when we shared the macroeconomic projections with you on the last call, a scenario of less inflation.

So if you take a look at the exposure that we have for the first quarter of 2018, was something around CPL 2.4 trillion. We reduced that to something around 1.7% to enter this quarter, especially because we thought that we have a scenario with lower inflation.

So I would say that we are very active in terms of hedging and expanding the exposure that we have in WACC. But as the bank is always -- from the banking book, for instance, it's quite hard to have zero exposure to WACC in the same way that it's very hard for a bank to have zero exposure in interest rates.

So I would say that we, and pretty much what I can see in the system, are always net long in inflation. What we have been doing is managing this loan position by being lower or higher than we would be on a basal level, let's put it that way.

So I think that we capture well, if you take a look I think we hedged well some part of the exposure we had true inflation, but it will never be zero. I mean even the size of the market, I think it would be hard for any major bank in Chile to do full hedged given the size of the derivative market for WACC. Certainly I think is the case for us.

If you take at the look of the graph below, you're going to want to see that - I think, it's quite uncharacteristic for the market to have a trimester with 0% inflation as we saw. Probably what you are going to see in the numbers that we have been seeing that were published for the second trimester so far, there is an important uptick to inflation.

So perhaps what you're going to see is that the second trimester will somehow net out some of the effects that we see in the first quarter. So we do actively manage it, I don't think is sufficient to change any perspective that we have for the year,

As I mentioned, in the beginning of the call we do see lower inflation for the year in around 10 basis points from our initial expectations, but I wouldn't read too much on this quarter in terms of trends in impact for the bank.

Jason Mollin

Thank you, Gabriel.

Gabriel Moura

Sure.

Operator

Your next question terms of the line of Jorg Friedemann from Citibank. Please go ahead.

Jorg Friedemann

Thank you for the opportunity. I have a quick follow-up on Jason's question in Columbia and two other questions a bit more specific. So on the follow-up those resolutions of the arbitration process with Helm would also help implementation and assertiveness of your strategy in Columbia. Then the follow-up.

And two quick questions. First, on the earnings call of one of your competitors on Tuesday, the bank mentioned to have revised the potential impact in their portfolio related to the new group basis and provision methodology. Actually they lowered the previous estimates of provisions based on a revision of the collaterals held by the bank. Could you provide your latest estimates on the potential impact for Itaú CorpBanca? And when you expect to book those provisions?

And the second question, over the past few days, there were some news released by local media in Columbia pointing towards potential new regulations that are being discussed in the lower house and that could affect the fees on the marketing, in particular, those related to credit and debit cards as well as restrictions on the charge of the specific banking fees such as those related to ATM withdrawals and wire transfers through the Internet. So how are you are seeing these developments? And if you could give us any color on the potential impact for the bank if those regulations pass? Thank you very much.

Gabriel Moura

Sure. Thank you Jorg for your questions. The first person you had it was about the arbitration in Columbia. As we mentioned before I think that the end of this arbitration process is positive for the bank because we move with the agenda in Columbia to be more focused on businesses and clients as this -- all this arbitration processes and how distraction for management.

So I think that we are still in the process of ending this arbitration. We are still seeking approval from regulatory bodies in Columbia, Chile, in Brazil. I think, it would take us at least two, three months in order to conclude that.

But our expectation is having conclude that is positive in our ability to be more agile and more focused on business because it reduces the entropy that we have for the bank in Columbia.

Your second point was about the group-based provisions in Chile. We have also been deepening our understanding of the portfolio that we have and especially the effect that the guarantees that affect the provisions we are still calculating this with more depth. Nowadays, I don't have anything to announce in terms of our changing view for this.

As I - as we have mentioned before what SBIF has announced last year was an estimated impact of around $300 million for the industry as a whole, we always thought that the estimates were around between $300 million and $400 million for the system as a whole because we have a market share of around 12% for this.

So we always said that the impact that we see was something between $30 million and $50 million. So I don't think that we are changing our view on this. I think it's still consistent.

We are searching for opportunities in order to minimize this impact either by reviewing some of the exposures and guarantees that we have as I mentioned before and also other exposures and how other guarantees are evaluated in the bank given a positive outcome of certain credits that we have.

So, by now I don't have anything to announce around this. I would believe that the impact that we are going to see from this new provision model should be within June or July timeframe. That's the initial expectation. The new regulation enters in July so I would assume that something between June and July is what should be expected.

The third question that you have was around new regulations on fees and banking in Columbia. I have read your report about this last week. And I think it's too early to have a view on this. Certainly, for the wrong reasons I think that I am less affected -- if that goes through I'm less affected than the other banks, and the reason for that is that when I take a look at the mix between fees and credit within the bank, it's something that we need to develop.

For sure, anything in the industry that affects the way you are able to charge your services affect the value creation of the business. But to be honest with you, we are so under in terms of the services and the fees that we charge for the clients, that I still think that we have much upside on this discussion.

Of course, going through, it may affect our ability to charge them, but then again, I would be much more ready if I had of dominant position in the market than what we have right now, for us, it's always an opportunity, we are not incumbent on the market.

So every change for us and I think it's more an opportunity to do something different, to attract some part of the market than to defend our position that we have. I think that's the upside or having bank with a lower position in the Colombia market.

Jorg Friedemann

Very clear. Thank you very much for the answers Gabriel.

Gabriel Moura

Sure.

Operator

Your next question terms of the line of Sebastián Gallego from CreditCorp Capital. Please go ahead.

Sebastián Gallego

Hi, good morning. Thanks for the opportunity. I have two questions. The first one is a -- probably a follow-up related to the arbitration in Columbia. So assuming the bank moves forward with the acquisition, how does the bank think about profitability in the long term? And how does the bank think about capital position given that the capital will be pressured due to the acquisition?

And the second question is regarding going back to the consumer lending in Chile, I know you, Gabriel, explained about the strategy and how the bank has been outperforming the industry.

But my question is we have observed some kind of slowdown over the past quarters in terms of loan growth within the consumer segment. Can you explain why are we observing that? And if you guys are expecting loan growth within the consumer segment to pick up again a bit more? Thank you.

Gabriel Moura

Sure. Thanks for your question Sebastián. First on profitability levels in Columbia. I think that we still have the same view for the asset. In terms of getting -- the main mission for us in the view that we have is getting our cost of equity back in Columbia. So I think that you can put a range in Columbia for the cost of equity something between 11% and 13%. So that's the level of return on tangible equity that we'd like to have in Columbia.

At least converging to this and then having other discussions. I mean of course, we -- all the investments that we have, the main goal is to have a value creation, but given the restructuring process that we have I would love to cross that bridge when we get there. So the main mission here is converge to the cost of equity that we have and then take a look at what are the options that are on the table.

On the capital side of the discussion, we need to have two separate discussions. On a Colombian per se, the capital that we have in Columbia, second one the capital that we have on the -- on a consolidated level. On the Colombian bank per se, without the adjustments for Basel III, I think that the bank has -- is already converged with a capital position that I think it's comfortable and leaves the bank with enough room to grow.

So when I take a look at CET1 fully loaded in Columbia, I don't see any major challenges. When I take a look at the consolidated level as we always discuss, on a fully loaded view that we have nowadays we should have CET1 around 7.8%, between 7.7% and 7.8%. I think that this is a conservative view based on all the information that we have so far, already introduces all the benefits that we have from the credit side, but also the charges that we expect to have on operational risk and market risk.

So I don't think any benefit from eventually having less density in risk-weighted assets. I think that is what is the conservative part of our estimates. But with 7.8%, we also have published that we expect the impact from the acquisition of the participation in the bank in Columbia to have an effect of around 80 basis points. So that will reduce our CET1 just something around 7%.

I think that -- when I take a look at the projections we have for the minimum capital levels by 2024, the expectation that we have with all the conservation buffer and also with SIFI charges would be something around 8%. Of course, we would not manage the bank with around 8%, I think that we need more than that. So I think anything between 9%, 9.5% it makes sense for the bank to converge.

So we still have a path of convergence from the 7% on a fully loaded, to at the end of 2024 have something around 9% to 9.5%. I think the challenge here is centered around three initiatives. First is profitability and core capital generation.

So I think that the bank needs to grow its profitability levels so we need to take at ROEs that we have compared to the industry. We have all the opportunities in terms of margins, fees and I think as well, in a part, an inefficiency to capture. So I think it's part of that convergence level is to being focused on core capital generation.

The second one is searching for efficiencies. I think that when I take a look at how Brazil manages its capital cycle and all the tools and initiatives that they have for managing capital, there are still things that we need to apply here.

So I think there are efficiencies in investments that we have and credits that we have that we can benefit from a better management in terms of capital leakage that we have in risk-weighted assets. So I think that I can take the benefit from this.

And the third part, the third line of defense somehow in this convergence path, for me, is dividend policy, and as you see we have dividend payout of around 30%. And I think it will be consistent throughout this period of convergence as we need to retain capital in order to fully converge to those levels. What the acquisition entails in terms of the change in plans that we have?

So far, none whatsoever. We still have the same plan, the same convergency path and we are working on that. So in terms of the expectations we have for convergence, they are still the same that we had prior to this.

Your second question was around this low growth in Chile. It's true that at some point when I take a look at the consumer growth, we grew at some points 18%, which was something around 100% more than the market and now we are growing 20% more than the market.

As I mentioned before, when we were growing twice the market, I said that it will be difficult for us to maintain those levels. I don't think there is sustainable for everyone to -- to anyone to grow at twice the market and maintaining the same level of NPL creations that we were able to do so.

So I think the more sustainable level that we have, it's around what we have so far. We see the market as a whole with less potential for growth than what we saw last year. I think markets are tighter in the first trimester for consumer growth.

Nevertheless, we are still able to grow 20% more than the market. I think that's a little bit of the goal that we are aiming for. I would love to grow more than what we're growing today. I don't think that it's possible to do so without having an impact of NPL creation.

So I'm comfortable with those levels growing 120% of the market. I think it's a fair goal and I think it's an aggressive one. And I think it will still enable us to change the mix that we are aiming for on the longer term.

Sebastián Gallego

Thank you so much.

Gabriel Moura

Sure.

Operator

[Operator Instructions] Your next question comes from the line of Alonso Aramburú from BTG. Please go ahead.

Alonso Aramburú

Yes, hi. Good morning. Thank you for the call. Just wanted a quick follow-up in Columbia. You mentioned initially, I believe, that industry loan growth should be around 8% to 10%. I'm just wondering given that you are restructuring your payroll portfolio, what kind of loan growth should we expect for this year?

And also when you mentioned your -- the ROE expectations or what you would like to be in Columbia, between 11% and 13%, how far away are you from that in terms of time? Is this something that you think you can get in 1, 2 years or is it something more like 3, 4 years away? Thank you.

Gabriel Moura

Sure. Thank you for the question, Alonso. On portfolio growth, I think -- as I mentioned, I think the industry is between 8% and 10%. For us, I think that we are going to be on the lower end of that growth. I think there are still challenges in Columbia as you mentioned in terms some of the portfolio that we are restructuring. We are at the end of this process, that's why I think we can aim for a better result in Columbia.

And as I mentioned, what I do see on the marginal basis, I'm more optimistic than I was a year ago. So I think that the industry as a whole had an important uptick in the first quarter, I do see NPLs converging to a much more comfortable level. And if we are able to do that, maintaining the cost of credit that we have in growing on average market, on the lower end of that distribution line, I'm glad with that.

I think that we're going to see a full convergence on a go-to-market strategy in Columbia next year. I think this is a transition year in Columbia, and I don't think that we are still on a business as usual phase in Columbia. But I'm glad with the evolution that we had.

In terms of return on tangible equity, I think that the first convergence that we had in Columbia we're seeing now. Not akin to what we have seen in Chile, the first convergence that we see results, it's our ability to converge to more comfortable cost of credit. We see that -- we saw that in Chile converging from 2017 to 2018 to something around 1.4 to 0.8.

And in Columbia, what we have been seeing is the convergence from 3.5% to something around 2%. So this first step in terms of the return on tangible equity is what we have seen so far and that's why we are seeing quarters with returns between 4% and 7%.

In order to achieve the 11% and 13%, I think it has to do with growing the portfolio and leveraging the bank operationally. And I think it takes time. So I don't think we are going to see returns in Columbia converging to those levels in 2 years, I'm more comfortable with the 5 year horizon.

Alonso Aramburú

Great. Thank you.

Operator

Your next question comes with a line of Nicolas Riva from Bank of America. Please go ahead.

Nicolas Riva

Yeah. Thank you very much for taking my question. Just one question specifically on Columbia. I believe that you had some exposure to the Rutles Oil [ph] concession and the banks got 2 payments of the loans granted, which was just about 50% of the original loans granted. Any discussions with the infrastructure agency or any news in terms of when you could be getting further permits? Thanks.

Gabriel Moura

Sure. Thank you for your question, Nicolas. We do not disclose the -- discuss the specific clients or specific credit operations, Nicolas. But I can tell you that we are very comfortable with -- based on information that we have so far, in the levels of provisions that we have for the credits, I think that we are very comfortable with the outcomes that we are seeing for the cases that have -- are being discussed in Columbia.

You have to remember that one of the impacts that we have in 2016, '17 and the beginning of '18 was converging all the levels of provisions especially on wholesale and also on projects that we have in Columbia to a more conservative view of the possible outcomes.

So the level of provisions that I had for certain cases, they take into consideration all the informations that we have available right now, and we are comfortable with that. So that's the view that we have for credit.

Nicolas Riva

Thanks.

Operator

There are no further questions at this time. I turn the call back over to management for closing remarks.

Gabriel Moura

Fantastic. Thank you so much for your questions. I believe that we have been working the last few quarters in order to have more information out to you. And I think that the way that the MD&A and the P&Ls are organized in the same way that we have for Itaú Unibanco, it will enable us and you to have a better view on the different risk characteristics of the portfolio and especially to have more transparency on financial market -- on financial margins with the market. So we'll see you on the next conference call and if you need any information from us, we are always available.

Operator

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