Itau Corpbanca. (ITCB) CEO Gabriel Moura on Q1 2021 Results - Earnings Call Transcript

Itau Corpbanca. (ITCB) Q1 2021 Earnings Conference Call May 3, 2021 11:00 AM ET

Company Participants

Claudia Labbé - Head of Investor Relations

Gabriel Moura - Chief Executive Officer

Rodrigo Couto - Chief Financial Officer

Conference Call Participants

Jason Mollin - Scotiabank

Sebastián Gallego - CrediCorp Capital

Jorg Friedman - Citibank

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Itau Corpbanca First Quarter 2021 Financial Results Conference Call. At this time, all attendees are in listen-only mode. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]

Now, I would like to welcome Ms. Claudia Labbé. Ma'am, the floor is yours.

Claudia Labbé

Thank you. Good morning. Thank you for joining our conference call for our First Quarter 2021 Financial Results. Before proceeding, let me mention that our remarks may include forward-looking information and actual performance could differ materially from that anticipated in any forward-looking comment as a result of macroeconomic conditions, market risk and other factors. I would also like to draw your attention to the financial information included in this management discussion and analysis presentation, which is based on our managerial model, in which we adjust for non-recurring events and we apply managerial criteria to disclose our income statement.

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. We believe this form of communicating our results will give you a clearer and better view of our performance through these different perspectives. Please refer to Pages 9 to 12 of our report for further details. With us today in this conference call are Mr. Gabriel Moura, CEO; and Mr. Rodrigo Couto, CFO. Mr. Moura will comment on 2021 first quarter results and our strategic evolution, as well as recent events. Afterwards, we will be available for a question-and-answer session. We have included a Q&A box on the console where you can type in your questions if you are not connected by phone. We will take questions from both the phone and the console. For the latter, we will read and answer your questions verbally. It is now my pleasure to turn the call over to Gabriel.

Gabriel Moura

Thank you, Claudia. Hello, everyone, and thank you for joining us for our 2021 First Quarter Earnings Call. Today's presentation has three parts -- an update on COVID-19, our first quarter 2021 results and an update on our transformation plan in the business strategy.

So, moving straight into Slide 3; while Chile gained international attention from the speed of its vaccination process during the first quarter of 2021, new infections surged to record levels. As a result, mobility restrictions were reintroduced and international borders were closed. There's strict quarantine measures, which for a while affected almost 90% of the population are now being rolled back. Chile's vaccination process has been one of the fastest in the world, outpacing both the U.S. and the UK in terms of the doses administered per 100 habitants.

As of April 30, 8.1 million people in Chile had received at least one dose of their vaccine and 83% of the people over 60 year-old have received both. We expected this speedy vaccination effort to pave the way for a significant economic reopening in the coming months. So, let's move to Slide 4. The Chilean authorities continue to act swiftly as well as on the economic recovery fronts. The government announced an expansion to the two-year COVID fund by over $6 billion U.S., that's 2% of the Chilean GDP. The Central Bank of Chile also has launched the third stretch of its credit facility conditional on increasing lending, their CIC 3 [ph], amounting to $10 billion over six months. Congress has also approved the expansion of the uses and the benefits of the guaranteed fund for SMEs, the FOGAPE. Legislators also approved a third 10% pension withdraw.

We once more demonstrated our commitment to being part of the solution through our participation in the FOGAPE reactivation program. We granted almost CLP268 billion of FOGAPE achiever guaranteed loans, achieving a participation of 11.3%, which is higher than our overall market share. Collectively, the Chilean authorities have acted decisively in responding to the pandemic crisis, both on the sanitary and economic fronts with positive impact both in economic activity and on the credit cycle. Nevertheless, there are medium to long-term consequences of the economic measures that are difficult to assess and may turn out to be significant in the future.

If we can please move to Slide 5. Prior to the latest lockdown in Chile, activity was building strong momentum. In the short term, the latest quarantine measures temporarily hindered economic activity. But the sustained progress of the vaccination, a strong external impulse from better terms of trade, support from macro policies and the carryover effect are consistent with a significant growth rebound this year. We continue to see GDP expanding 6.5% in 2021, following the 5.8% decline last year. Moreover, risks remain tilted to the upside.

We still see inflation close to the 3% target over our forecast horizon as the output gap is too wide. Lastly, we expect the first rate hike of the cycle to come into the last quarter of 2021 from the first quarter of 2022 previously. While we see only 125 [ph] basis points rate hikes this year in the last meeting of 2021, assess the reopening of the economy than we currently expect in an environment of high terms of trade would probably lead the Central Bank to increase rates by more before the year ends.

In Colombia, we expect the economy to bounce back with growth of 5% this year after shrinking by 6.8% in 2020. We also expect a broadly stable current account deficit this year and a wide [ph] 3.4% of GDP compared with 3.3% of GDP last year. Inflation is on track to close this year at 2.8%. We believe that there's still large output gap along with well-behaved inflation and inflation expectations support rates remain stable at a low 1.75% for the remainder of this year. However, the risks tilt toward early rate hikes if global financial conditions keep tightening. Now moving forward, let's talk about how the bank performed for these three months of 2021.

On Slide 7, we share some of the highlights for the first quarter 2021. Our consolidated net income was CLP95.1 billion and CLP84 billion in Chile, which is the highest quarterly net income in our history. Consolidated return on tangible equity was 21.5% and return on tangible equity for our Chilean operation was 25.4%. Our revenues in Chile were boosted by financial margins with the market. Expense growth remained subdued with cost declining 0.4% quarter-on-quarter. Cost of credit was quite benign across all our portfolios, resulting in an 89.3 reduction relative to last quarter when we've reinforced provisions for corporate in SME clients. While we will not believe that the levels of profitability achieved in the first quarter will be maintained going forward, we do believe that this strong first quarter sets up for a significant rebound in profitability this year.

Moving on to Slide 8, we show that our loan portfolio grew by 1.4% in the first quarter, which is broadly in-line with our guidance of mid-single digit loan growth for 2021. Our portfolio grew 2.3% in retail and 1% in wholesale, also in-line with our strategy and guidance of focusing on retail growth while being selective in terms of the returns for wholesale aiming [ph]. Our strategy for wholesale has enabled us to significantly improve margins and therefore to achieve higher returns on capital.

On Slide 9, we see that our financial margins with clients in Chile decreased 1.6% in the first quarter, mainly due to seasonal effect of the sale of the student loan portfolio in the fourth quarter of 2020. On the graphic below, which explains the change in our first quarter 2021 margins with clients [ph], versus the fourth quarter of 2020, we see the effect of higher margins on commercial loans, as well as on deposits. Those positive contributions were offset by a change in credit portfolio mix, mainly due to the contraction of the consumer portfolio as a result of the pandemic, as well as by a reduction in average loan volumes.

Moving on to Slide 10, we showed that our financial margins with the market was CLP60.5 billion pesos in the first quarter, about CLP21 billion higher than that of the fourth quarter of 2020. Despite a lower exposure to the U.S. [ph], our decreasing CLP405 billion [ph] and a lower inflation. Revenues were high across our trading in banking businesses, despite a 45% reduction in inflation exposure since the third quarter of last year.

Here on Slide 11, we can see our main credit risk indicators in Chile. Cost of credit in the first quarter was CLP24.8 billion, which corresponds to 0.5% of our average loan portfolio. We are seeing a quite benign credit risk across our portfolios. In retail the NPLs of the retail end consumer credits that did not receive any payment relief are below mid-2019 levels. That is pre-pandemic in pre-social unrest. The credits that did receive payment relief are in all repayment now and performing better than expected. In wholesale, we did have one corporate case rolling to NPL, but it was already adequately provisioned, so it did not have any significant impact on P&L. The movements that you've seen commercial NPLs, total NPLs and NPL coverage [ph] are mostly explained by that one case and therefore do not reflect overall portfolio trends.

As a result of the provisions we established in 2020, our NPL coverage ratio remains very high in historical terms despite the decrease shown in this quarter. Our coverage evolution quarter-over-quarter is consistent with our expected loss provisioning model, which allow us to be ahead of the NPL cycle, while maintaining high levels of protection through the cycle. As far as our perspective for the year, we are training towards the low end of the range we provided as guidance for cost of credit, which was between 1% and 1.3%.

On July 12, we show non-interest expenses for the quarter, which have remained very much under control, decreasing 0.4% quarter-over-quarter, while the efficiency ratio improved by five percentage points despite their both inflation increasing costs year-over-year, which resulted mainly from the fact that in the first quarter 2020, was positively affected by reversal of variable compensation provisions. We maintained our guidance of a cost growth below inflation for 2021.

Now moving on to slide 13, we show that our liquidity provisions remains very strong with both LCR and NSFR and historically high levels since 2020, boosted in part by government liquidity support measures. In Slide 14, we can see that Columbia as well had a positive impact on the quarter, reaching at 8.2% managerial [ph] return over tangible equity. Operating trends were positive as well with 3% quarter-on-quarter loan growth, a rebound in operation revenues and a normalization of cost of credit at significantly lower costs.

On Slide 15, we see our fully-loaded set one capital ratio increased by 50 basis points year-over-year and 20 basis points quarter-over-quarter. We expect our capital ratios to improve steadily going forward as our profitability recovers and we continue to advance in our capital efficiency efforts. As I mentioned in the last call, we are discussing internally at the highest levels, how best to address where capitalization ratios going forward. Considering our upcoming acquisition of additional interest in Itau Corpbanca Colombia, as well as the ruling of [indiscernible]. We will make the relevant disclosures of information as it becomes available.

Let's move on to the next part of the presentation. On Slide 17, I will recap our evolution in the last 12-month period and on the following slides, I will share the progress that we have made so far. When facing a scenario never seen before in March 2020, our adaptation and management capabilities were tested. Our robust governance and solid risk management allow us to continue to run the bank for under those challenging circumstances. As we promptly organize our operations and prepare the bank for the crisis. We acted quickly to ensure our customers had appropriate remote access to the bank, while at the same time developing solutions needed for that period. It was a time of taking care of our people, our customers and the bank and we fully focused on that.

From September 2020 onwards, we begin to shift our focus to building the bank of the future, leveraging what we learned and developed during the crisis. In the months that follow, we developed our transformation plan based on the pillars of a strategic focus on disruption, customer centricity, simplicity, and digitization in an agile working model in a discipline approach to achieving sustainable results.

If we can please move to Slide 18. Before sharing some of the advances in this strategy, I would like to first introduce our new organizational structure. We made important change to our executive committee to ensure that we have the right structure and the right talent with the necessary skill set to lead this transformation process. The most relevant structural changes are: one, we created a digital business development of management division, which is in charge of our transformation overall, as well as the most innovative elements of our plan; and two, the decentralization of our operations, which was key to reinforce customer centricity and agility. In addition to structural changes, we also brought over new heads of technology in the hole for the wholesale bank.

On Slide 19, we introduce Eduardo Neves as the new Head of IT, who has been working with us since April; and Sebastián Romero as Head of the Wholesale Banking, replacing Christian Tauber, who were with us in September. Both Eduardo and Sebastián, our top executives with experience in the industry and strong track records as you can see in their mini bios on this page.

On Slide 20, I would like to reintroduce Jorge Novis as the Head of our new Digital Business Development Division. Jorge has been with us for a few years now, lastly, as Head of Operations. Previously, he led several business transformation programs at Itaú Unibanco, which gave him gave him relevant experience and made him the best person to lead the transformation office we have created to implement our new strategy. The transformation office will coordinate and oversee the transformation process, supported by dedicated IT, finance, and HR [ph] in working closely with each of the work stream leaders and teams.

It is worth mentioning that this structure in the overall methodology we are following to implement the transformation has been successfully deployed in Itaú Unibanco as well as in other banks and companies in different regions. After describing how we are setting ourselves up to deliver the transformation plan, I will now comment on the progress we have already made over the last few months, starting on Slide 21. We recently announced a new strategic alliance with Rappi, our leading digital player in Latin America, through which we seek to bring innovative and disruptive ways of providing financial services to both individuals and companies in Chile. Through this partnership, we are integrating financial services into a large ecosystem, which enable us to assess a lot -- to assess a large customer base to boost our growth while adding value to the ecosystem. We expect to launch the first product of our partnerships on the third quarter of this year.

In our journey of customer experience transformation, we have made significant progress over the last year as you can see on the left hand side of Slide 22. Having said that, we are not at all satisfied as we regard the low NPS of the banking industry in general Chile, as a clear opportunity for us to disrupt the market. On the digital front, we have made huge progress with our with our new app, which is now ranked number one in Chile in the three major app stores. As you might recall in the fourth quarter 2020, we launched a digital wallet that allows payments in smartphones, in smartwatches, making them easier and safer, as well as opening both Visa and Mastercard options for our clients. Three months later, we have seen an increasing adaption of this functionality. As a few weeks ago, we launched the invested mass [ph] checking account, which enables quick and easy access to our open investment platform through a 100% digital platform with a hassle free onboarding.

On slide 23, we present our innovative organization model [indiscernible]. We are moving towards an agile working model with scale with full integration across all areas. The first step on this journey is integrating business and technology and join teams, pursuing business objectives broken down into three months sprints; this migration towards an agile operation model allow us to simplify the organization structure and therefore accelerate decision-making through empowered multidisciplinary teams. This year, we also have been recognized for our excellence in key areas. For example, the Best Trade Finance Provider by Global Finance and Banking, Best Asset Management in fixed income by Morningstar and the Deal of the Year by IFR Awards for our role in the emission of the Peruvian government. Wrapping up, we started 2021 strong, which is just the first step on the journey to achieving the sustainable results. We are fully conscious that much remains to be done and that is why we are in full transformation mode to achieve our medium to long term performance aspirations.

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

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from the line of Jason Mollin of Scotiabank. Your line is now open.

Jason Mollin

Hello. Thanks for the opportunity to ask questions, Gabriel, Rodrigo, Claudia. My first question is just on overall profitability. You highlighted the trend in cost of risk and the strong trading and we have some guidance for the full year. I'm just trying to get a sense if we kind of normalize the provisions and normalize trading. I think given some kind of 20% tax rate around there, it seems to me that your return on equity, you're showing to almost 21% is pretty impressive. But when we normalize, we would be at probably half that level, or even slightly below. And I just wanted to get a sense if I'm thinking about that right for the rest of the year. And then my second question is related to your agreement with Rappi, is this an exclusive agreement? I think you talked about some terms. I think there's some period through which it may be, but if you can talk a little bit on how that's going to work? Thank you.

Gabriel Moura

Sure. Thank you for your question, Jason. As you mentioned in your first question, I don't think that we are saying that we are going to have a 25% return on tangible equity in the operation in Chile on a sustainable basis. I think it was a very good quarter in terms of financial margins with the market, as well with our cost of credit below what we thought we might have for this year. As I previously mentioned, we do see a lot of potential for the asset that we have in Chile. I think that the guidance that we had for long term cost of credit was something around 0.8%. As you remember, we always discuss this number as a business as usual sustainable cost of credit, given our mix of portfolio. The number that we saw was 0.5%. As a matter of fact, if you take the numbers for Itaú Chile Corpbanca on a separate basis between 2012 and 2015, I think that you're going to have an average of 0.5%. So it's nothing that new. Of course, we didn't expect for this credit cycle. So, I would say if we normalize this and normalize the financial margins with the market, we will encounter a lower return on tangible equity. Having said that, I'm quite optimistic with the year that we have. We are seeing good results. In terms of spreads, we were able to increase the spreads that we have on the wholesale portfolio. We still have some challenges on the consumer portfolio and as I mentioned before, when I think about the potential of return on tangible equity for operation in Chile, I think 16% is something achievable from what I see here in the projections that we have. So, we don't have any specific guidance for the year, but I'm hoping for better numbers that been the ones that you mentioned, for the return that we have for this year and we hope for better returns approaching the 15% to 16% return on tangible equity on a sustainable basis for the bank. I believe this is the plan that we have. For Rappi, we have negotiated for six months with Simón Borrero, who is the CEO with Rappi globally for this joint venture that we have with them. We have exclusivity over the application of Rappi for the distribution of financial services both for the client that Rappi has -- it has over one million clients in Chile, as well as on the company side for all the providers that Rappi has, of companies that are selling the services through the platform. We also have the exclusivity for the distribution of financial services. It's a new model. We used to take our experience in Itaú Unibanco of doing partnerships with retailers. We were quite successful in achieving that. We are developing this model with Chile with Rappi. So, I think there are good opportunities for us with all the flow of clients that they have incorporating a new attraction model for the bank, as well as to learn more from a company that has been wildly successful in developing its digital model for Latin America, to learn from them and apply what we learn into our business. That's at least the ambition that we have for Rappi.

Jason Mollin

Thank you very much.

Gabriel Moura

Sure.

Operator

Your next question is from Sebastian from Credit Corp Capital. Your line is now open.

Sebastián Gallego

Hello, everyone, Gabriel, Claudia and the rest of the team -- Rodrigo. Thank you for the presentation. I have several questions today. The first one on capital. Gabriel, you mentioned during the presentation that the new information will be disclosed when it is available. The key question here is what are your initial thoughts considering the recovery of profitability? The potential needs that the bank may have and when do you expect to have disclosures for the market? That will be the initial question. The second question is regarding overall profitability. Going back to a question of Jason. Because you talk a lot about how the sustainable return on tangible equity will be between 15% to 16% in Chile, but you continue to fail to talk about consolidated, profitability and talk about the picture in Colombia. So my specific question here would be what are the trends that you're looking at on a consolidated basis for profitability? And what's the outlook including from a strategic point of view in Colombia, also considering recent challenges at the fiscal front? And the third question will be, we saw a minor impairment on the managerial result and I'm wondering if you could expand on that impairment charge that you made during the quarter and if we should expect new impairments throughout the year? Thank you very much.

Gabriel Moura

Sure, thank you for your question, Sebastian. So our first one capital as I mentioned in the previous call. When we take a look at the first plan that we have of doing all the convergence to Basel 3 [ph] with generating and retaining capital prior to 2025, I think that plan was mostly affected by the effects that we saw in 2019 due to the social unrest in Chile and the cost of credit that entailed. And of course with the dividend payment that we had of a dividend payout of 100% in the past, as well as all the pandemic adjustments that we did on the portfolio last year. So, taking the time that went through and taking our ability [ph] to generate and retain capital during those years, I think that the plan has to change. And this is a discussion that we now have with the Board and with the controlling shareholder in terms of the capital structure that we have in the bank and how we will converge through time. We do not have any specific information to share with you right now regarding time and also amounts of an eventual capitalization of the bank. But I can tell you that we will have new information this year to share with you. Your second question was about overall profitability. When you take a look at Chile, the answer is the same that I gave to Jason.

When I take a look at Colombia, I think things are more challenging. In Colombia, as you saw, we had a dilution of certain basically three or four percentage points in Colombia that's coming from 25 [ph], coming out of 16 for instance, the potential dilution will be lower than that, something around 2% as I mentioned in previous calls. I think it has been challenging in Colombia because we were affected in our go-to market strategy as things also become more complicated in Colombia, especially because of the pandemic. I still think that it's possible for the Colombian business to converge to show its cost of equity around 12%. And we had an 8% return on the first quarter, which I think then again, not different from Chile. I think that we're probably going to see a lower return in Colombia than 8% for this year. I don't think that Colombia will dilute as more than 2% but we are now discussing what are the options that we have to increase our shareholders equity value creation for the business in Colombia. And I think that the best answer that we have so far, is focusing more of the bank in some specific segments and we're going to share this with you this year as well.

For the impact of the impairment, I think it would be a good idea if Rodrigo can discuss this with you. Rodrigo?

Rodrigo Couto

Yes. Hello, Sebastián. So, we have two things in our recurring results. One is the amortization of the intangible generated through business combinations. That's just a treatment that we have every quarter. So there's nothing new there. And my concerned is that there was no impairment I know of goodwill, or of intangibles for business combinations. Okay? So the only thing there was, was the writing or motivation of business combinations. The impairment that we did have which is like CLP1.3 billion was related to some technology assets related to the system's consolidation. As you might remember, we build a larger impairments in December and these are some residual impairment of technology assets. We do not expect any major impairment going forward. Having said that, we review our intangible assets, and we also review our fixed assets continuously, then we might have some small movements throughout the year.

Sebastián Gallego

Very clear. Thank you very much for the answers.

Operator

[Operator Instructions] Your last question is from the line of George Friedman from Citibank. Your line is now open.

Jorg Friedman

Hello. Good morning, everyone. Thank you for the opportunity to make questions. So, I'd like to try to get a bit more color about your expectations on the revenue front. I think it was very clear already from the comments of Gabriel what to expect in terms of coming profitability for the year. But just to get a bit more sense about how to get there, if you could, Gabriel, remind us what are the trends that support your ALM results? Because even though everybody makes a call on how unsustainable these numbers might be, I also noticed that last quarter, it was strong, this quarter it was strong and I think it might be associated with ALM given levels of rates or something else. So, if you could help us through understanding what has sustained these levels of NII [ph] with the market, that would be helpful is the first question. And the second question, but also focusing on revenue generation, if you could give us some ideas about what are the trends expected for fee income? One of your competitors last week released a guidance expecting 8% to 10% increase of fee income throughout the year as the reopening takes place and activity increases. Is this a trend that we could also expect for the other banks in the banking system? Thank you very much.

Gabriel Moura

Sure. Thank you for your question, George. I think that when I take a look at over the next few years, I think that revenue generation that will be key in order to maintain the levels of results that I mentioned before. Through this year, I think that we're still going to be a little bit shy than the long term projections that we have on revenues, mainly because of two things. We still see at least on the first semester of this year, a little bit shy, the volumes are especially on the consumer front. We saw some resilience on the mortgages portfolio. As you saw we are increasing 8% year-over-year. It was a market that is more resilient and has higher latency in terms of being affected by economic downturn.

On the other hand, we were able to -- if you take a look at the how interest rates have fallen for the past few years and the resilience that we had on spreads -- I think it was quite good, especially on the wholesale part of the portfolio as you mentioned, we were very focused on making sure that we are increasing the value creation of the credits that we are in. We are able also to maintain or expand the spreads that we have on the retail side. But of course, if you take a look at the portfolio as a whole, in terms of the mix, it was affected, as we are decreasing less than the market, but truly decreasing the consumer portfolio as all the effects of the pandemic. If you take a look at the fees, as you mentioned, growing now fees by 8% from the fall that we have last year, I think it's something feasible, but it has to do more with the starting base that we have, then compared to the numbers that we had in 2019.

And I think that comment goes as well for the industry. You have to remember that in Chile, not like Brazil, which the fees are more on the service side, the fees in Chile, especially on our case are more linked to credit concession -- in terms of the insurance products that we have, in terms of the fees that we charge for structuring credits on the wholesale. So, as we see on the second semester, a better activity on credit concessions. I do see a rebound in fees and I think that the numbers that you mentioned are very reasonable for the year that we have. But the main drivers that we are seeing in terms of the profitability for this year is growing the revenues that we have. But I see the normalization over cost of credit and a strong cost control. For this year, I think that will be the main highlight for the bank. As you saw, we are doing well in treasury. We are the first bank, for instance in Chile for FX trading for our clients and also for derivatives. So, we do see a strong treasury in terms of the activity with clients and you'll see those numbers.

But then again, I think that converging to the bottom, or perhaps better than the bottom of the guidance that we should for cost of credit, it's a strong driver. I don't feel that if we are at the bottom of the range or even lower than the range that we provide the cost of credit is something that is not sustainable for the bank. As I mentioned several times before, what I do see as a cost of credit on a business as usual situation for the bank is something around 0.8%. So, converging on that strong cost efficiency and growing revenue steadily for the next few years, I think that will converge the delay [ph] to what we mentioned before. I don't know if I answered your question, George.

Jorg Friedman

Thank you very much, Gabriel. Actually, you answered even more than what was questioned and I really appreciate the color. But if you could just touch base once again on NII [ph] with the market. So, what are really the trends we should monitor to understand the levels of these results? Whether we should expect already for the coming quarters a reversion to the mean which was over the last year, something around CLP25 billion per quarter? Thank you.

Gabriel Moura

Yes. What probably we are going to see our lower returns on treasury, I don't think that we can repeat the pattern that we have sustainably going forward. I do see good results for the next quarter. But then again, maintaining the level of profitability, financial margins with the market, I think it would be tough. But I do see reactivation of volumes in other fronts. So, I think that we will not fully-compensate the lower return on the financial margins with the market throughout the year with financial margins with clients that that takes a little bit of time. But then again, as I mentioned, with the FOGAPE loans that we put forward, that we have a good guarantee and I think that we were able to put forward a good portfolio on SMEs, the level of profitability that we have for our deposits -- if we take a look deposits year-over-year, at retail, we rose almost 70% our current account deposits. So, those operational trends, they are they are quite good. But then again, I think that what we are going to see on the first semester of the year is more a market-dominant return. And what we are going to see on the second semester is more a client-dominated return. I think I like better the second one because it's more sustainable dwell [ph] time. Even though if you take a look at the results that we have in treasury for the last few years, they are quite good and sustainable. So, I think that to achieve the level of returns that we are talking about for this year, probably it's going to be more concentrated on second semester in terms of the growth of the portfolio two of the mid-single digits that we have talked about within the guidance. If you take our guidance and you put it forward, probably you will arrive in the return that we are talking about.

Jorg Friedman

That's perfect. Super clear. Thank you very much.

Gabriel Moura

Thank you, George.

Operator

There are no further questions, Claudia. Please, go ahead.

Claudia Labbé

Hello. We have two questions from the console that we will answer now. So the first question coming from Florencia Stefani LarrainVial. Florencia says, 'Hi, Gabriel. Could you give us some guidance about the net income for this year and the evolution in coming years?'

Gabriel Moura

Okay, I think it is similar to the discussion that we have on the previous answers. But I think it gives me the opportunity of making something clear. I don't think that we are saying that we do believe that for the Chilean operation, even for the consolidated return of 20 plus something percent, it's something that it's sustainable taking a look at the future of the bank. In the same way, I think it's reasonable to say that the results that we went through on the last few years, given all the adjustments that we needed to do in the portfolio, do not fully represent the potential value that we have for the bank. So, I think it's important to take a look at the balance of both things, because it's easy to somehow this contract the results that we are having this quarter. But it's also important to take a look at the context of the results that we have in the past.

Seeing the big picture, as we always mentioned, I think for the Chilean operation, we can clearly see a result sustainable between 15% and 16% of return on tangible equity. It's true that we have still to sold the Colombia operation. As I mentioned also before, we think that the Colombian operation is at least two years behind what we did in Chile. I still think it's possible for the Colombian operation to converge to a return on tangible equity around 12%, which is the cost of equity that we assign to Colombia. And given that the dilution, especially because we have less than around 20% of the assets on the Colombia operation will be less than 2% on the overall picture. I think it's important to see through the cycle in the same way that we were optimistic taking a look at the future when we did all the adjustments that was necessary for the bank during the pandemic and before the pandemic, mainly on the cost of credit.

I think it's impossible I think it's possible and reasonable to have the same expectation that we have right now. So, I do feel that we have a strong asset, I do feel that it's possible to achieve the results that we're seeing and I do feel that the transformation process that we are going through will give strong base for this bank to continue to grow and maintain those levels throughout the future.

Claudia Labbé

Thank you, Gabriel. We have one last question today coming from Felipe Torres [ph] RBC Corp. Felipe says, 'Thanks for the presentation. Could you give us some guidance regarding long growth, cause of risk needs, NIM [ph] and net income regarding the Colombian operation?

Gabriel Moura

Hi, Felipe. We do not disclose guidance for the Colombian operation because we're still stabilizing the operation as we mentioned before. It's hard for us to come up with some numbers for Colombia, given all the volatility that the bank has and also the volatility of the market. Having said that, I think that the Columbia operation is experiencing the same effects that we saw in Chile, that all the work that was done throughout the past few years are generating results. So, in terms of the credit losses that we have, it's much more stable giving all the provisions that we did last year and the years before that as well. When I take a look at our expenses, we were able to grow expenses less than inflation in less than the market. So, those are two comments for cost of credit and also for expenses. I think that the main volatility that we have is for income. I think that we had a portfolio that didn't perform in terms of the commercial performance as we would like. Then again, I think that works in our favor in this moment that I think that the relationship between risk and return is more opaque during the pandemic. So, we didn't grow 25% the commercial portfolio as we saw some banks growing in Colombia in 2019. I think that that went in our favor and we also went out of some portfolios that we thought had higher risk. So, we were able to adjust the banking terms, of its balance sheet, in terms of its operational value and now we have to construct over this. As we mentioned, we are thinking about how to better-tackle this. Probably the strategy that we had, which was a strategy based on being a universal bank for all segments in Colombia is a strategy that it's very difficult to implement, given the scale that we have. And we would like more to focus our operation in some specific segments. Having said that, I think that's something that we can discuss a few months in the future as we work out the plan that we have.

Claudia Labbé

This was our last question, Gabriel. So, I think that you can make final remarks.

Gabriel Moura

Fantastic. Brilliant. Thank you so much for your participation and for the questions that you have. As always, Rodrigo, Claudia and I, am always available for you. I'm very positive with the year that we have looking forward and also with all the changes that we are doing with the bank. I think that it's a beginning of a new chapter in our history and we will keep you updated as we move along. Thank you very much.

Operator

And with that, this concludes today's conference call. Thank you for attending. You may now disconnect. Presenters, please stand by.