Itaú CorpBanca (ITCB) Q1 2020 Results Earnings Conference Call May 4, 2020 11:00 AM ET
Claudia Labbé - IR
Gabriel Moura - CEO
Conference Call Participants
Jason Mollin - Scotiabank
Sebastián Gallego - CrediCorp Capital
Jörg Friedemann - Citibank
Ladies and gentlemen, thank you for standing by, and welcome to the Itaú CorpBanca First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].
I would now like to hand the conference over to your speaker today, Claudia Labbé, Head of Investor Relations. Thank you. Please go ahead, ma’am.
Good morning. Thank you for joining our conference call for our first quarter 2020 financial results. Before proceeding any further, let me mention 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 that we adjust for non-recurring events, and we apply managerial criteria to disclose our income statement. This managerial financial model reflect how we measure, analyze and discuss financial results by segregating commercial performance, financial risk management, credit risk management and cost efficiency.
We believe this form of communicating our results will give you a clearer and better view of how we fare under these different perspectives. Please refer to pages 9 to 12 of our report for further details. Now, let's continue with the presentation.
First, Mr. Moura will comment on 2020's first quarter results. Afterwards, we will be available for a question-and-answer session. It is now my pleasure to turn the call over to Gabriel.
Good morning, Claudia. Good morning, everyone, and welcome to Itaú CorpBanca's first quarter 2020 earnings conference call. As you are about to see, we have broken down this presentation in three parts: An update on our COVID-19 pandemic presentation that we held three weeks ago; first quarter 2020's results; and our review on how to manage the bank during this challenging period.
So moving straight to slide number 3. As we’ve shown on Slide 3, the restrictions implemented on movement and social context translate into significant economic impact and changes the dynamic of the expected Chilean economic growth. At this point, it is too early to estimate precisely those impacts. Nevertheless, we will present possible economic scenarios for 2020 and the following years.
Our current base scenario is of 1.9% contraction in GDP in 2020, followed by a sharp recovery in 2021. However, short-term signals are showing a lower GDP than our base case scenario. However, current scenario translates into expectations of a 0.5% interest rate in 2020 and 3% inflation in the period. Nevertheless, we acknowledge the possibility of a more severe scenario that could reach to 5% GDP contraction in 2020 and a 6% inflation.
On Slide 4 we show Colombia where the virus will likely result in the undoing of much of the economic recovery seen in recent years as the government ordered 1.5 month lockdown period starting from March 25. We expect the economy to contract by at least 1.54% this year, while inflation in the quarter remain near the upper bound of the tolerance range around the Central Bank's 3% target, at 3.8%. The shock to domestic demand moved more than upside inflationary pressures derived from supply shocks. As a result, the Central Bank responded to the crisis by implementing a policy rate of 50 basis points cuts to 3.75%, the first rate move in nearly two years. The general manager of the Central Bank also signaling that the policy rates will be lowered by as much as necessary during this crisis. We see the rate reaching 2.75%.
If we can move please to the slide number 5. Now, entering in an update of some of our initiatives, regarding our branch operation. On Slide 5, we provide some details on how we’ve evolved. As I have mentioned on my previous presentation on COVID-19, we are closely monitoring how our clients are using our physical services and analyzing the necessity of adjusting the availability of our branch network. Even though, initially we were operating with a reduced capacity, at all times, we had 100% presence in the country. Since today, the availability of our branch network has returned almost to normal with 95% of our branches open for our clients.
At the same time, we continue to experience an important increase in our digital channels usage, as presented on Slide 6. The total number of log-ins to our website and app channels increased by 41% for individuals in the last 12 months. At the same time, our corporate clients usage of these channels, increased by 57%. During March, we have provided a 99.5% availability of our digital channels for our clients. This level of availability means that our clients were able to use the main functionalities of our web and app without any faults. This summarizes the work we have been doing to fulfill our clients’ expectations to be able to operate whenever deemed. The current situation also has generated a shift in some of our clients that were not used to operate digitally. We believe that this behavior could remain intact and could bring benefits in the long run.
To give you an example, on Slide 7, we present some data on usage increase in different types of products through our digital channels. During this past month, we saw a relevant increase in transactions, payments and time deposits for both individuals and companies. We also experienced an 87% increase in loans originated in digital channels for our corporate clients. In the meantime, our individual clients increased their credit card limits by 30%, taking advantage of our credit offer also through digital channels.
As we continue to increase digital communication with clients, on Slide 8, we bring you an update on the launching of our live streaming series Visión de Líderes that most of you might recall as one of the four company initiatives mentioned three weeks ago. In this stream series we have been hosting leaders from the most important sectors of the economy, which have shared their view on the evolution of the disease and its impacts on the economy. During times like this, we believe that it’s extremely important to be present, even it’s digitally, to provide our clients the security that we continue to be 100% available for them.
On Slide 9 we provide an update on how we were able to support remote working for most of our central administration employees. So far, 30% of our employees are currently in home office, helping us to reduce the density in our administrative buildings and branches by decreasing 85% of the average circulation on those buildings. As far as the remote infrastructure, we have deployed 2,500 laptops and made available new technology tools such as Office 365 and Microsoft Teams to improve the remote productivity of our people. It's fair to say that our operational capacity is preserved and our infrastructure can support operations in that remote environment, while our corporate security level is maintained.
So, if we can move to Slide 10. We show the latest government initiatives to continue support the economy and helping companies to access funding during the crisis. In this context, since March 2020, the CMF has issued several regulations, guarantee greater flexibility of the financial system, as the postponement of the implementation of Basal III requirements for one year and maintaining the current general regulatory framework for banks’ capital requirements until December 2021. The Central Bank on the other hand has launched two liquidity facilities for banks at a preferential interest rates. The total amount banks can borrow under these given facilities correspond to a 3% of the loan book and up to 15% if loans are directed towards SMEs. Recently the Minister of Finance has issued a government guaranteed 38 months credit lines to SMEs to protect economic activity as well.
On Slide 11 we show the results of the first tender of this COVID-19 credit line. For total demand of US$2.9 billion, Itaú demand was the second largest with almost 20%. This credit line enable us to support our clients and signature finance companies, individuals during this crisis.
On slide 12 we show an update on some of the initiatives we have previously mentioned to help our clients to navigate through this moment of crisis. These initiatives represent our effort to seek the best solution to serve our clients in the best way possible. Our credit deferral campaign is designed to offer financial support for our clients in different segments. On consumer and commercial loans, we offer the possibility to defer the next 3 installments for non-overdue contracts with the preferential rates. This initiative has moved from 30% acceptance rate to 48%. We also provided alternative for clients represent similar conditions to defer installments in mortgage loans and to choose a zero minimum payment in their credit cards in April. On mortgages, the client acceptance rate has reached -- has increased from 15% to 35%.
As shown on Slide 13, we continue to move forward to be part of the solution. In this context, Itaú CorpBanca supported Chilean female entrepreneurs with US$41,000 to make masks for staff working with vulnerable children. Additionally we donated US$1.8 million to the initiative from the Fundacion Las Rosas to fight against the COVID-19 pandemic and tripled the donation from our employees for the Teleton totaling $810,000. In Colombia and we financed part of the emergency hospital for pensions with COVID-19.
On Slide 15 we now move to the second part of the presentation with the first quarter results. On this slide we show some of the main highlights for the first quarter 2020. We reached a consolidated return on tangible equity of 6.8% on the back of a net income decrease of 1.1% year-over-year. In Chile we posted a return of 8.4% with net income stable and lowered tangible equity after 100% dividend payout in March. Net income performance was mainly driven by negative economic impact of the COVID-19 pandemic, on our cost of credit, particularly in Chile.
On the other hand, higher activity in Chile in the last 12 months, a 12.2% increase in a better weighted average spread on the loan portfolio that helped us to offset the increase of the growth of the average portfolio, boosting the financial margins for the clients in Chile. Lastly, we continue to keep our managerial non-interest rates at [bay], posting a decrease of 1.9% in the last 12 months in Chile.
Moving to Slide 16, we show that the Chilean portfolio extended at increased pace on mortgages and commercial. Despite lower growth rate consumer credit portfolio continued to outperform the market on a 12 month period since mid 2017. As you know, this has been handful in our strategy to rebalance our loan book to better mix of consumer and commercial that will help us to close a gap in financial margin and operationally leverage our retail operation.
Moreover, according to our expectations, commercial growth to continue to be aligned with the market as we continue to deepen our service offerings and cash management cross-sell. For the mortgage portfolio as we manage to adjust our operational model and value proposition for this market in the second half of 2019, in the last few months, we have outperformed the market.
On Slide 17, we present our financial margins with clients. As our overall portfolio continues to grow so thus our margin with clients which grew 4.3% when compared to the same period of last year. On the other hand, we observe a negative impact coming from the reduction of interest rates that affects our liabilities and capital margins that we have managed to partially offset as we see a decrease in NIMs is less sharp than monetary policy interest rate cuts. The negative variation of this trimester when compared to the fourth trimester of 2019 is explained by the sale of the student loan portfolio last quarter and the decrease in our consumer portfolios impacting the loan portfolio mix this quarter.
Moving on to Page 18, as is stated in our previous calls, our relevant part of our assets with our clients is denominated in inflation-linked index, the UF. We actively manage the loan position in inflation in our banking book under the guidelines of a risk appetite and risk limit set by the Board and the Asset Liability Committee. As for the UF, increased 1% when compared to the fourth quarter of 2019. The contribution for our banking will partially offset the negative impact for a higher market volatility in our treasury operations, particularly driven by the decrease in interest rates. This decrease led to an increase in mark-to-market derivatives, which in turn translated to higher credit value adjustments. Since a significant part of the increase in CVA is due to a single case, we believe this is a temporary difference that could revert during 2020. Overall, our financial margin with the market decreased 8.9% compared to the previous trimester.
Now going forward, let's talk about our cost of credit and credit quality. Here on Slide 19, we can see our main credit risk indicators in Chile. This quarter our cost of credit amounted to CLP55.6 billion, resulting in a 52% increase when compared to the same period of 2019. This amount is impacted by the negative economic effects of the COVID-19 pandemic, as well as for the effects that we had for the social unrest at the last trimester. As we have mentioned in previous calls, the social unrest has negatively impacted the NPL ratios in the short-term, as some businesses or individuals were adversely affected by less economic activity and acts of vandalism in the fourth quarter of 2019.
In addition, current economic scenario has put some pressure on consumer NPLs which has increased 2.5% in the first quarter of 2020. Despite this increase as we're deepening our analysis on clients’ cash flow, we expect NPLs to stabilize in next quarters. In addition, NPLs of commercial loans was impacted by single corporate clients in the first quarter and at the same time let to a decrease in our coverage ratio.
Now moving to Slide 20, we see our non-interest expense evolution. When we look over a 12 month period, our expenses decreased at a rate of 6.7%. Furthermore, if we isolate depreciation and amortization, that reflects all the investments we have been making in our digital platform and scaling up our businesses, expenses have additionally decreased in the period due to the reverse of provisions of bonuses related to last year. Lower expenses with frauds, marketing and less operational volume due to the economic impact of the COVID-19 pandemic. We always have a diligent focus on the efficient uses of our resources and we reiterate our beliefs shared on previous conference calls that we still see further synergy opportunities and continue to expect efficiency to gradually improve throughout the next quarters.
Now moving to Slide 21, we can discuss our capital structure. In the last few months, the Chilean regulators have started to release guidelines for the implementation for the Basel III framework. The CMF has released so far capital charges for systemic important banks, for operational risks, capital reductions, the specific buffer sizes and changes in the credit risk weighted assets. These guidelines coincide with our estimates from the capital planning we have been discussing with you in the past couple of years. We continue to work with regulatory entities to closely monitor the evolution of new revelation and so far all the announcements are in line with our models and expectations. Among the measure recently announced by CMF, the implementation of Basel III requirements related to capital reductions and risk-weighted assets have been postponed for one year and therefore maintaining the current general regulatory framework for banks’ capital requirements until December 2021. Our estimates for new regulatory environment suggest a minimum regulatory CET1 of 8% for 2025, once Basel III is fully implemented.
As shown here, our current CET1 estimate position is 6.4%. The decrease in this ratio when compared to our previous release of 7.7% was driven by the decrease in equity due to the dividend payment, higher than our provision for dividends as well as an increasing risk-weighted assets as effect of the decreasing trade exposure, risk derivatives and the depreciation of the Chilean peso relative to the U.S. dollar in the quarter. Our plan is to continue to convert in profitability and have a core capital generation retention that allow us to comply with capital requirements in the timeframe that has been discussed. Moreover, we are actively searching for opportunities of our capital management to fine tune our capital position aimed to reduce risk-weighted asset expenses.
Now moving to Slide 22. We can discuss our liquidity. Our LCR and NSFR are well above our internal limits. Our LCR is currently at 125%, higher-than our internal limit of 100%, set by our Board of Directors and also well above the regulatory minimum of 70%, which has been increased at this level by the CMF, instead of moving up to 80% this year. Our NSFR has increased to 95% above our internal minimum of 90%. And as you know, the CMF does not currently establish a limit for NSFR. In Colombia, we also have comfortable liquidity ratios with very similar levels of LCR and NSFR. As we can all see in this slide, total deposits have had a record year in terms of both, increasing 13% when compared to the previous quarter and 36% compared to the same period of 2019. In all of our clients segments, we have experienced a strong growth both in checking account balances and time deposits.
If you can please move to slide number 23. Here we can see the evolution of the net income of the Chilean pesos -- of the Colombian operation, I'm sorry. In the first quarter net income for Colombia increased COP55 billion compared to the previous quarter. These results benefitted from lower cost of credit and higher financial margins as well as lower non-interest expenses. We will continue our path of convergence to our operations in Colombia. As we mentioned before, this convergence will not happen overnight and as we have to undertake important risk adjustments in practice as well as review our business position and strategy. Furthermore the impacts that we have been seen in the economy and because of the COVID pandemic, probably we are going to see a more volatile year than what we have seen in the past few years for Colombia.
Cost of credit remains under control at 1.7%, due to lower provision for assets receiving year of payments. Non-interest expenses are almost flat when compared to the same period last year, on the back of lower personnel and administrative expenses. Administrative expenses decreased due to software development, security and extraordinary expenses due to branches disclosures occurred in the first quarter 2019 on the back of footprint optimization.
If you can go to slide number 25, as you might wonder, our guidance for 2020 is under review since the COVID-19 pandemic added a new surge of uncertainty to global economic activity. From a macroeconomic point of view, the impact of COVID-19 in Chile is still uncertain. As we have discussed, our estimates indicated that COVID-19 results in a decline of 1.9% in Chilean GDP in 2020 from our prior estimate of an increase of 1.2%. However, it's worth noting that there is a considerable degree of uncertainty around GDP growth forecast for this year, which seems from uncertainty of the duration of the lockdown and isolation measures and the pace of recovery in the second half of 2020.
It is reasonable to believe that the longer duration of isolation measures, thus lower the recovery will be in the second half of this year. Since the consequences of the financial conditions of corporate and households tend to be more intense delaying the normalization. Economic stagnation, contraction and increase of unemployment levels may also affect the cost of risk that we have. And also results with higher NPLs given the deteriorated financial conditions of our clients and therefore higher provisions for loan losses and low [net income].
On the other hand, we believe that in terms of expenses we have further work to do and we expect to get back to you with an updated guidance in our next conference call.
On Slide 26 we present our milestone for this challenge year. As we have discussed, we have organized our operations and prepared our bank for the crisis. At the same time we have executed a transition plan to continue to be fully accessible in a remote way to continue to provide solutions requested by our clients, especially during this period. Also supporting to protect our teams, at the same time, we reinforce our organization values and culture. Lastly, we have maintained operational and technological foundations to keep the bank running strong, safe and sound. In doing this, we support the society and we build a bank that we want for the future.
With this, we conclude the presentation I have for you today and I would gladly take any questions that you might have.
[Operator Instructions]. Your first question comes from the line of Jason Mollin with Deutsche bank. Your line is open.
Hi, this is Jason Mullen with Scotiabank. Gabriel, thank you for the presentation and following up as well the presentation you gave on COVID. You mentioned here multiple measures and campaigns taken by government sector, Itaú CorpBanca. At this point can you talk about how Itaú CorpBanca has differentiated itself versus peers in Chile as well as in Colombia? What are some of the things that you believe that Itaú CorpBanca is doing better than peers and some of the things...?
Thank you for your question, Jason. I think it has been a challenging moment for all the banking industry. I'm glad to say, Jason, that in this moment, it was very important for all the banks to act together in terms of their actions. So, what I think is more important here is that I saw all the banks moving in terms of having facility for the clients adapting the cash flows for their clients at this moment, doing donations to recognize that we all need to be part of the solution. So, one thing that I'm very glad is that most of the things that we did, all the banks worked in the same direction and I think -- and I cannot stress this enough. I don't think that this is the moment to generate comparative advantages in terms of some of those criterias that we have discussed right now. Because I think that everyone needs to be part of the solution here. What are the things that I believe that we did very well during this? I think that we were very fast. I think that we have adapted our operations quite quickly to the demand and have a strong deployment of remote capabilities. We were available for our clients with all the footprint for our branch work -- from our branches, whenever we had demand for it, and also through the digital. We were able to put on the campaigns for deferral of credits I think faster and more digitally than the other banks. Some of the discussions on the banks where the clients needed to go to the branch or had some physical process to go through and I think that we were among the first ones with a full digital offering for that. If you look at the adoptance rate that we have, I think it kind of reflects that.
On the other things that we did is, I believe that the value that we have for our customers, you can divide it in both -- mainly three main pillars. One is transactional with all the products that we have for our liquidity of our clients, for investment management, for risk. So, I think that on a transaction basis we have several projects. The second pillar that we have I think is in terms of advisory, meaning that working with clients to understand their needs and to fulfill the products that they have. But I think that also we have the third pillar that we were not exercising that with all the availability of distribution channels that we now have, which is information. So we have been working with Brazil in initiatives that they have, which is called Vision of Leaders and we have adapted that to Chile. If you take a look at YouTube, the kind of views that we have for the context that we are producing are quite relevant. When you compare to the other banks, I think that we became a major player in streaming information here in Chile, exploring new content, exploring new distribution channels. I think in that case we are opening new doors to become a more digital bank, not only for the first two pillars, which is transactions and also advisories, but how we can give better information, giving everyone that we know, given that we are across different sectors. So, we brought the CEO from ENAP which is the major oil company of Chile to talk a little bit of the market. Doctors, we brought several different people. Ex-Central Bank Governors, ex-Ministers Of Finance to give lectures, to give talks to our client and open to everyone in generating content.
So, I think what we did and I'm very proud of is that, every investment that we undertook in the last few years gave us capability to play more beautifully at this moment, and I think that we are fulfilling this role. So, I feel proud of what we would accomplish on this performance.
Your next question comes from the line of Sebastián Gallego with Credit Capital. Your line is open.
Actually some questions. The first one related to loan growth. I know obviously guidance is under revision, but just wanted to get a sense on how do you expect loan growth to evolve, considering the initiatives given by the government? Precisely, your strategy has been focused on consumer, but most of the initiatives coming from the government are associated to the corporate or SMEs segment. So, how do you see that impacting your loan mix and how do you expect the system as a whole to absorb all those new loans? Second question, maybe if you can clarify on the acceptance rate on the credit deferral campaign. I just want to get a confirmation if the 48% client acceptance rate on the consumer and commercial loans means that have -- pretty much half of the clients have received some type of benefit at this point. And lastly, if you could talk about the forces that may move the margins, client margins in Chile this year. And how do you probably roughly estimate that in which direction might go in terms of margins? Thank you, Gabriel.
Sure. Thank you so much for your question, Sebastián. Your first question was about loan growth. And as you mentioned, I think it's quite challenging to do projections of GDP and loan growth based on the date that we now have. We have a very large matrix in which we plot different scenarios for GDP growth based on what the date that we as an economy start to operate normally. And we have some milestones for that. So, because we don't still have completely clear what is the date that we are getting out of the situation? It's hard for us to do any projections for the future. What we know is that as we go through time, it becomes increasingly difficult to see a virtual cycle for the short-term. Nevertheless, as we mentioned, I think that the mix will change in the economy. I think that, you do see more need for leverage on commercial, on companies. And the reason for that as I mentioned before, I think that we are going to see good businesses with good competitive advantages, good clients, that have a good financial structure, but with liquidity issues because they are not sound. So for those clients, of course they need to increase their leverage for a period of time that naturally will converge through time, of course, and not differently from what we saw during the social unrest in Chile.
You're going to have the type 2 situation, which is, businesses that are not that competitive, that are not with a sound financial structure, having more serious issues that leverage on a standalone basis, doesn't solve the problem. So I think that what we've been doing is taking a look at sectors, taking a look at companies case-by-case to understand what are the situations. I think that because of that you're going to see commercial more active than consumer credit, especially because consumer credit is at most of the cases related to the acquisition of something, the consumption of some service. And as you see consumption going down, it's natural that you're going to see less credits.
On the other hand, because you're talking about working capital for the second group, for companies, that's where I think that you're going to see a higher growth. I think that's a little bit of the numbers that we have seen on the past month or so, so commercial going more than consumer. I think for the market as a whole will have that trend, I don't think we are going to be that different. I think it's for us to maintain any strategy at this moment and try to force some growth on consumer for the market that is right now. I think it will bring an adverse selection process for us and will consume margin.
So at the end of the day, the changes in mix that we need to do, we are aiming at better return. So we cannot blindly focus on the same things that we were focusing before without adapting ourselves to the market we now have. We still think that it's very important for us to change mix, but we know how to adapt to these conditions into the market to do it on a sustainable way.
The second point that you mentioned was acceptance rates. And yes, we have the acceptance rates for about 48% of the clients that have non-overdue installments in credit for mortgages and also for consumer loans. You have to remember that -- and we took a look at it, clients that are postponing the credit, not necessarily their clients that are in need for liquidity or in need -- or they have bad credit positions. I can give you an example, on the mortgage offer that we did, when we take a look at the risk profile of the clients that are taking this offer, they're quite good and the reason for that is based on the interest rates that we are offering and we do not discriminate client with according to interest rates for this specific offering. We have seen clients seeing this as an essential opportunity for them to have lower interest rates for some period. That's why I would not be very extreme in saying that clients that are postponing the credit right now are really clients in need and clients that will bring some more cost of credit in the future. So, I don't think that the 48% is an indication of cost of credit. But it is indeed important to observe that we live in a period in which costs of credit tends to be higher, but I will not establish a direct link between the acceptance rate and also cost of credit.
The third one you asked about margins, I think that in terms of -- let's separate margins like we do in three different parts. So, for margin with clients, they have three different vertices. The first one is from credits. And in credits I think that we are seeing stable margins. The cost of funding has dropped significantly for some of the products that we have seen, especially for short-term credits or short-term costs of credit. If you take a look at deposits rate, deposits rate our being 5 basis points, 3 basis points for 30 days. So, in that sense the cost of funding went down. But also a large part of it was benefit for our clients. So, I do not expect larger financial margins for credits, but I also do not expect a compression of margin aside from the discussion we had which was for lines of credit, the regulations changes in Chile. So we see lower volume that affected the mix. But aside from this, I do not expect pressure from this.
The two other vertices, I think there is some pressure, which is the financial margins with liabilities and the financial margin with our capital. Both of them are directly affected by lower interest rates. In both cases, we are hedged on a longer term. We have durations for three years for our current account deposits and for our capital.
So, we are not experiencing the effects of the lower TPM right now, but we are hedged for some period of time. So, we can maintain that but as low as interest rates go down, so those are margin with clients. So, in that sense, I think that the pressure that you have in margins are basically from the free float that you have, in that sense our disadvantage compared to other banks become minimal. So, at zero percent interest rates the difference of having current account deposits are not -- becomes very minimal. But what happens is not that I'm increasing my returns on that. The other banks I think that will suffer more on their margins than we do. So, I think that's on margin. I don't know if I answered all your questions.
[Operator Instructions]. Your next question comes from Jörg Friedemann with Citibank. Your line is open.
Hi, Gabriel. Thank you very much for the presentation. I have two questions. The first one, we know that Itaú in Brazil moved already to full expected loss, even though the regulators do not require that. We also know that regulators in Chile do not fully expect the loss. So my question is whether your bank should align with the standards of the headquarters or should follow only the regulators’ recommendations in Chile? And in case you do align with the headquarters, if there are any changes that we might expect in terms of final cost of risk and coverage because of that? So, this is the first question. And the second question, looking into your presentation, you mentioned already the -- I know full adjusted CET1 taking into consideration the upcoming changes in the future, just wondering if the 6.4% already incorporate the acquisition of the additional estate that you’re going to do in 2022 from your partner or not? In the case it does not, what would be the further adjustment number for CET1? Thank you very much.
Jörg, thank you for your questions. The first one of expected loss, remember that here in Chile and also as we consolidated Colombia, we always work with an expected loss models. So we have our internal models for consumer, for commercial. So everything that we do is an expected model with probability of the fall and the loss given the full estimations that are either provided by the CMF in terms of the different ratings, the scales of ratings that they use, that they have and implied probability of the fall and loss given the fall or by group models for consumer for instance. So we have already -- we always operated on the aspect of loss model. Of course, during this period, the superintendents -- I am sorry, the CMF is also -- give more flexibility in terms of the -- how do you apply some of the models regarding period NPLs, because there are two parts of it, the coverage that you have to have for some -- for NPLs. And also how do you see a special rate negotiation of some cases. What we are doing is that for accounting terms, we will be following the guides of the CMF but we will be constituting additional provisions to adapt for the difference between our internal models and expected loss and any flexibilization that the CMS might have. I think this is important because -- I think it's very important to take into consideration the moment that we have, the facts that we have without generating tails in terms of future loss. So the way that we're going to manage this is we are going to continue to do the expected model as if there was not any flexibilization for the crisis. I think that's the more prudent way. We might see some more impact and not different from the discussions that we had so far. But I’d rather do it this way than come up with better numbers and create a tail for the future.
You second question was about CET1. Yes, it's fully adjusted for everything that -- for every regulations that is now in place, but it does not contain the impact from a future acquisition of Colombia as a accounting practice and we did this in Helm and other acquisitions and it's the same thing that Brazil does. We only account for transactions after they have been approved for the regulators. We have all of the disclaimers on the financial statements, but we only incorporate them in the groups after we have an approval. The expected impact for capital for the acquisition in 2022 is not different from what we saw in Helm. I think it's quite similar, something around 0.7%, 0.9% impact from the acquisition. But it also does not contain any capital generation that we might have for the next few years.
So I think those things should balance out. Nevertheless, if we're talking about capital convergence, of course, the scenario impact us in terms of our ability to converge to the levels of capital that we expect. We still maintain our plan should do the convergence of core -- with our core capital generation, but of course we need to incorporate in the scenario in which we might not be able to fully converge given the timings and how this crisis prolongs throughout time. In that sense Itaú Unibanco has already stated that it’s prepared to capitalize Itaú CorpBanca if and when it's needed.
There no further questions at this time. I will turn the call back over to the presenters.
Fantastic. Thank you so much. I think with this, we conclude our conference call and we see you next quarter. As always Claudia and I are always available for you for follow ups that you might have. See you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.