Banco Itaú Chile (ITAUCL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Itaú CorpBanca's webcast for an update on the measures we have implemented in order to adapt our operations and to support our employees, customers and society after the COVID-19 outbreak. Today, we will not discuss financial results, which will be presented on our first quarter 2020 webcast and conference call on May 4. Now let's continue with the presentation. First, Mr. Gabriel Moura, Itaú CorpBanca's Chief Executive Officer, will update you on our operations and initiatives. Afterwards, we will be available for a virtual question-and-answer session. Since this presentation is being held through webcast only, we have included a Q&A box on the console where you can type your questions. We will read and answer your questions verbally. It is now my pleasure to turn the call over to Gabriel.

Thank you very much, Claudia. Good morning, everyone, and welcome to this extraordinary webcast. Today, we will take the opportunity to go through an update on the recent changes on the banking environment facing the evolution of the COVID-19 pandemic and some of our initiatives to organize our operations and to manage the bank during this challenging period. So let's move to Slide #2. On this slide, we present the evolution of the number of cases of COVID-19 in Chile, which reached over 7,000 until April 12, 2020. As you may know, since the beginning of March, local authorities have been implementing increasing measures targeting to reduce pandemic pace to avoid the collapse of public and private health systems. Initially, measures were related to social distancing, and since the past 3 weeks, authorities have kept the borders closed and have implemented full quarantine for some regions of the country. Specialists estimate that the peak of the epidemic here in Chile should occur between the end of April and the beginning of May. Can we move to Slide 3? And we can see the restrictions implemented on the movement and social contact translate into significant economic impact and changes the dynamic of the expected Chilean economic growth. At this point, it's still too early to estimate precisely those impacts. Nevertheless, we present possible economic scenarios for 2020 and the following years. Our base case scenario is 1.9% contraction of GDP in 2020 followed by a sharp recovery in 2021. That scenario translates into the expectation of 0.5% interest rate in 2020 and 3% inflation in the same period. However, we acknowledge the possibility of more severe scenarios that could reach up to 5% GDP contraction in 2020 and 6% inflation. If we can move to Slide 4, we highlight some recent actions taken by the Chilean government in order to adjust regulation to the current scenario. Yesterday, President Piñera announced that bank loans for companies affected by the COVID-19 with annual sales up to USD 1 million, which is approximately $32 million, will have a preferential interest rate and will be state-guaranteed. Further, the CMF had issued a new framework and has avoided accentuating the negative effects of the current economic cycle for banks that were willing to offer different alternatives to clients such as grace periods for some products and flexibility in terms of collector structure. At the same time, CMF also decided to postpone the implementation of new capital regulations under Basel III standards. If we can move to Slide 5, you can see that in order better to manage the impact of COVID-19 in our operations, we organize ourselves in 3 main pillars, as presented here. The first pillar is related to our clients and what needed to be done to continue to be fully accessible in a remote way and continue to provide the solutions requested by our clients, especially during this period. The second pillar is related to our teams and how we can support and protect them at the same time as we reinforce our organization values and culture. The third pillar relates to our efforts to maintain the operational and technological conditions to keep the bank running strong, safe and solid. Now entering in more detail on the first pillar. On Slide 7, we bring some examples of our digital communication refined during this period. We have increased our frequency in digital contact, sending information on investment alternatives, details on market volatility and tips how to avoid digital fraud related to the current situation, helping those that needed the most on transition to the use of remote channels and disclosing new functionalities and conveniences. We are also incentivizing the use of virtual meetings with our corporate clients. And next week, we will be launching our live streaming series, Vision of leaders, in which we'll be hosting leaders from the most important sectors of the economy, which we will share their view on the evolution of the disease and the effects on the economy. During times like this, we believe that it is extremely important to be present, even if digitally, to provide to our clients the security that we want to be 100% available to them. On Slide 8, we show some examples of initiatives to help our clients to navigate through this moment of crisis. Our credit deferral campaign is designed to offer financial support to our clients in different segments. These initiatives represent our effort to seek the best solutions to serve our clients in the best way possible. Our consumer and commercial loans, we offer possibility to defer the next 3 installments for non-overdue contracts with the preferential rate. This initiative had a 30% client acceptance rate so far. We also provided alternatives for clients that present similar conditions to defer installment in mortgage loans and to choose a 0 minimum payment in the credit cards in April, both with significant client acceptance rate as well. If we move to Slide 9, we can also see that we have experienced an important increase in our digital channels usage. The total number of log-ins to our website and app channels increased by 40% on individuals in the last 12 months. At the same time, our corporate client usage of these channels increased by 57%. During March, we have provided a 99.5% availability of our digital channels to clients. This level of availability means that our clients were able to use the main functionalities of our app or website without any fault. This summarizes the work we have been doing to fulfill our clients' expectations to be able to operate whenever they need. The situation has also generated a shift with some of our clients that were not used to operate digitally. We believe that this behavior could remain in time and could bring benefits in the long run. To give you an example, on Slide 10, we present some data on usage of different products -- types of products through our digital channels. During the past month, we saw a rampant increase in transactions, payments and deposits, both from individuals and companies. We also experienced 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 preapproved offer also through digital channels, when compared to our other distribution channels. As shown on Slide 11, in Itaú CorpBanca, we want to be part of the solution. In this context, we have made a contribution of CLP 1.5 billion to the Confederacion de la Produccion y del Comercio to collaborate with the country in the fight against COVID-19 pandemic. Also as part of the joint effort between our employees, Itaú CorpBanca tripled the value of donations made by our team to the Teleton, dedicated to the rehabilitation of children and young people with motor disabilities. Together with our donation of our clients, the bank contributed almost CLP 700,000 -- CLP 700 million. During this period of social distancing and aiming to entertain children, we have also launched the Read for a Child campaign in Instagram, in which we have partnered with [ Maria Alegria ], a well-known Chilean storyteller, to narrate books written by Maria Jose Ferrada, another well-known Chilean children's writer. Moving to Slide 13. We will discuss some of the details related to our second pillar, protecting our people. We were able to implement in a fairly agile way preventive measures to protect our teams without jeopardizing our operations and our business. This was only possible due to the continuous investment in developing people and technology. We have implemented a series of actions to support our people during this period of crisis that include daily reports to staff to keep them informed of the decisions made by the executive committee, temporary suspension of job contract terminations without cause and other arrangements related to maintaining the health of our teams and to help them with some financial support. We are learning how our employees adjust to remote work, and this should benefit everyone after this moment of crisis. Now moving to our Slide 15. We are entering on our last pillar, taking care of our bank. We believe our governance and risk management practices are well established to ensure business continuity. This includes a solid structure to manage risk based in 3 lines of defenses. As you all know, we have a risk appetite statement approved by our Board of Directors that can only be changed by it. It comprises 5 dimensions that define the nature and risk levels that are acceptable to Itau CorpBanca. Our management team is constantly monitoring these 5 pillars through preapproved metrics and defining action plans if needed. In addition to this structure in aiming to reduce our operational risks and to ensure the well-being of our people, on Slide 16, we provide some details on how we were able to set up remote working for most of our central administration employees. We have also segregated critical teams that are physically working at our offices in order to guarantee backups if necessary. So far, 50% of our employees are currently in home office, helping us to reduce the density in our administrative building and branches by decreasing 80% the average circulation in those buildings. As far as of the remote infrastructure, we have deployed 1,900 laptops and made available new technology tools, such as Office 365 and Microsoft Teams, to improve the remote productivity of our people. It is fair to say that our operational capacity is preserved and our infrastructure can support operations in a remote environment, while our corporate security level is maintained. As shown on Slide 17, in the same context, we have reduced our branch operations to 40%. However, we are closely monitoring how our clients are using our physical services in analyzing necessity of adjusting the availability of our branch network. Even though we are operating with reduced capacity, we still have 100% presence in the country. We have adopted some security measures for both our central administration buildings and our branches, such as an adjusted service hours, reducing branch personnel, on-site rotation schedules and a 2-meter distance between workstations in order to protect our clients and our employees. In addition, we have oriented the high-risk group employees to stay at home even when remote is not possible. As far as our vendors and service providers, we have identified our communication -- intensified our communication in order to improve the risk assessment and guarantee the service continuity. Our contact center has reduced its operating workforce by 30%, but we are currently working to gradually increase the remote attention through desktop virtualization. On Slide 18, we present some details on measures by authorities in Chile as part of the risk and liquidity management. The Central Bank implemented several actions to enhance the liquidity in the market, such as credit facilities to bank in order to promote lending, repurchase of bank bonds, suspension of liquidity limits compliance, among others. In Itaú CorpBanca, we are constantly monitoring the behavior of the market in order to ensure the bank's cash and liquidity, which are on adequate levels according to our risk appetite in Basel III standards. Taking this into consideration, we took advantage of a market window to issue a $200 million bond to strengthen our short-term liquidity position. We continue to manage our capital ratios in accordance to our transaction agreement that stipulates our goal as a maximum level between 120% of the minimum regulatory capital or the average of the 3 largest banks in Chile. As previously disclosed to the market in a material fact released on March, Itaú Unibanco will remain attentive in the next months to evaluate the potential need to carry out the capital increase as necessary in order to comply with capitalization levels set by the new general banking law and also in accordance with the terms of the shareholders' agreement. As shown on Slide 19, credit risk management is a fundamental pillar of our risk capital. Therefore, we are closely following the behavior of our portfolio, considering parameters such as the diversification of portfolio exposure by sector, economic chain, product and client's credit score. We are also working close to key business that provide essential services and products for managing the crisis in order to provide support and guarantee critical supply networks for the country during the crisis. Moving on to our final remarks on Slide 21. I would like to highlight that our teams are working to find the best way to contribute to our society, and we believe that guaranteeing the basics is the first step, and that means taking care of our people, our customers and our bank. In addition, we are taking advantage of this moment to strengthen our values, our culture and our way of doing things, but we are convinced that we are facing challenges that demand our total attention and management on the situation. We've also been investing over these past few years in people development and technology, and we are convinced that this has made our operations more resilient to deal with the crisis. Next weeks, we'll test the best of our adaptation and management capabilities. Hence, our robust governance and solid risk management will allow us to continue to run the bank for as long as it's needed under these challenging circumstances. It is also important to highlight that we want to be part of the solution and we're working hard towards it. We need to join forces so that everyone comes out of this crisis stronger than before. With this, we conclude the presentation that I had for you today, and I would gladly take any questions that you might have.

[Operator Instructions] And we have a question from Citibank Jorg Friedemann. And the question is, we understand that the proposal to pay out 100% of profits related to 2019 is a matter decided by shareholders and goes beyond management decision. But in light of this situation and the current crisis, may the bank anticipate a capital increase before the suggested for early 2021?

Jorg, thank you for your question. As you know, in the shareholders' meeting, the management has proposed a 30% dividend distribution for this year, but the [ main ] shareholders, as part of their shareholders' agreement, they voted for 100% of distribution. Given that Itaú Unibanco had to comply with this shareholders' agreement, Itaú Unibanco also sent out a communication within our communication to the market, saying that it is fully committed to the capital of Itaú CorpBanca and will participate in any capital increase that the bank might need in the future. There is a time frame, as you mentioned, around 2021, but I think that we didn't change the plans that we have for capital management. We are still looking over the growth that we had, of course, within this scenario in terms of capital impact. Probably you're going to see lower growth for this year. I think this is fairly obvious. But on the other hand, probably, we're going to see higher impact in results due to main credit provisions. I don't think, based on what we see right now in our stress testing and how we take a look at the credit cycle, that we need to anticipate any discussions of capital increase. We are fairly okay with the levels of capital that we have right now. But given the challenges that we see forward, when we resume growth and the implementation of Basel III standards, probably, we are going to either be capable of retaining capital, which is fairly more difficult on this scenario, than the original planning that we have. Or we do -- we are going to do a capital increase process. I don't think that we need to anticipate anything right now but we are constantly monitoring the situation with Itaú Unibanco, and if we have any more information on this, we'll gladly share with you.

We have another question coming from Citibank from Jorg Friedemann also. Itau has been historically conservative in managing asset quality, proof of it being the case of Alto Maipo, when coverage increased substantially. What to expect in terms of: one, peak of NPL. Any reference from previous crisis? Two, coverage starting to increase already in first Q '20 -- 2020. And three, how to assess real asset quality ahead in light of grace periods?

Thanks again for your question, Jorg. I think you're right. I think that we are conservative when -- I think that we are conservative. I don't think it's the best word. I think that we are disciplined on risk management, and that goes for credit, that goes for market liquidity. I think that we have a very strong risk management framework and also governance, which means that we are always taking a look at the portfolio and we always do our provisions on an expected loss view. That goes for how we calculate them for the local financial statements that we issue in Chile as well as for 20-F in the United States now with IFRS 9, which means that we always have a prospective view in terms of the provisions that we do. In the cases that you mentioned, corporate cases, we are always evaluating with companies and their ability to pay the debt and the value of the guarantees that we have. And if we have to do adjustments on this forward view, we do it at once. For the beginning of the crisis right now, I think that it's reasonable to expect higher cost of credit. I think businesses and individuals will be impacted by it. Remember that Chile came from a crisis in 2019, the last quarter of 2019, due to the social unrest, and that also generated some impact on businesses, and that's why you saw NPLs rising. I think that we have to manage through the cycle. You mentioned coverage. I think that what happens is that we use -- because we are always forward-looking, what happens is that in periods that you have a more tight view of the future, you increase your level of coverage. And during the cycle, this coverage goes down as you have more information about the end of the cycle. So I think that you're probably going to see some fluctuations of coverage as we manage through the cycle and as we incorporate future information or future expectations that we have into our expected loss models. We just issued the numbers of the first quarter on -- last Thursday. The idea here is not to discuss the numbers as we are -- we issue the resuming of the accounting results, and we are still working with -- and managerial results that we published in the MD&A, so I'm not ready to make any statements about the end of the quarter. But I can tell you that it was according to the expectations we had and with the guidance that we wish. So I do see a credit tightening cycle in the future. I think that -- and you mentioned the grace periods and some of the rescheduling of credit that we did. Remember that we did this to credits that were not overdue, meaning that the clients that were constantly paying their credit. So there is no adverse selection on this process. I think that the main challenge that we have for managing this credit cycle, it's separating between 2 different discussions. The first one is a liquidity base of our clients in which we're going to have clients with good businesses, with good financial structures, with good clients that are competitive on the market that are not selling, that are not having revenues during this period. I don't know if you saw this, but there is this graph that shows how many days without selling some small and mid companies and for the market in U.S., can we maintain their views without having revenues? And for the average business in the U.S., that's roughly 26, 27 days. So we are on 21 on the 20th day of a larger quarantine here in Chile, which means that some business like restaurants related to tourism, they are not having new revenues. But they are very competitive business that have good client base and good position in the market. They just have a liquidity issue right now. So I think that at the end of this process, we're going to have clients with solid position in the market that are more leveraged due to this interruption of rents. And I don't think that we have any problems in credit in terms of rescheduling our cash flow with those clients in order to gain some flexibility for their cash flows. I think that doesn't affect directly our credit portfolio. Having said that, I think that there is a second discussion in which as in any economy, you're going to have businesses that doesn't -- that don't have such a solid footprint on the market, that they have problems to being competitive or their financial structure is already more leveraged. In those discussions, a liquidity problem then adds up to the risk of credit. I think that what we've been doing so far is being very diligent in terms of defining the first group and the second work group working together in -- with the first group in order to do reschedulement, and with the second group trying to take a look at the guarantees that we have and protecting the bank in terms of the loss given default. I think that's a little bit of strategy that we have. But we need to manage through the cycle. I think that it's too early to have a clear view of the credit cycle. I think it's fairly obvious that it is a tighter cycle, that we are going to see businesses that are more leveraged. And deterioration of the aggregate credit portfolio of the economy. I think that those main variables, I think it's fairly clear that they're going to happen.

We have another question coming from Citibank. This time, from Gabriel Nobrega. Following provisions already made in 4Q 2019, do you feel the need to increase provisions for any specific segment? Do you expect effect of delinquencies to spill over to 2021, and that affects provision spend?

I think that when we take a look at the impact that we have on the first quarter of 2019, I think that we did the provisions to incorporate all the information we had. So if you take a look at the last quarter of last year, we did some provisions to incorporate everything that happened at that point. Of course, we need always to take a look at the different sectors and different players. I don't think -- I think that the main point here is not to manage credit in a business as usual way. I think more important than -- taking a look at different sectors, and we did it as we mapped our portfolio and divided with the sectors that were mostly affected by the virus and medium risk and so on and so forth. So we did it all. But I think that the main discussion is case by case. As I mentioned, you can have specific sectors that is more affected with that, with a client that has a strong footprint on this and a solid company. So in that case, it's not a sectorial discussion but how that company manages the cycle through the next few quarters. In terms of delinquency spilling over in 2021, I think, of course, you're going to see tighter credit markets. The size of the tail of the spillover of the credit, it really depends on the curves that we saw for GDP. Our base case is a contraction within the second quarter of something around 7% to 10% with a rapid recovery for the third and the fourth quarter. If that the base case for it, then I think it's fairly well contained in 2020. If the curve is a little bit different and the way that we have to manage quarantine, the way that we have to manage business activity, it's larger and having more a U-shaped curve than a V-shaped curve through the next quarters, then I think that you will have a spillover for 2021. That's not the base case right now. We are based our models in the curves that we saw for some countries that have the impact prior to us, but we are dealing with something new and something that changes exponentially. And I think that as I mentioned, Chile is still not at the peak point of the impacts of the virus. So I think that we are being constructive. We are incorporating different scenarios in our risk management policies. But so far, I think that we are going to deal this during 2020, but with the discussion in terms of financial impact, but with the discussions throughout next years, but I think with main impacts in 2020.

Okay. Our next question is coming from Scotiabank. We have 2 questions from Jason Mollin. The first question is on credit deferral campaign. How will the deferrals be accounted for in the bank's financial statement? Do you expect clients' acceptance to increase materially from the 30% roughly in consumer commercial, 15% in mortgages and 20% to 25% in credit cards? And then I will go with the second question after Gabriel answers this one.

Okay. Fantastic. Jason, thanks for your question. I think that one point that is important for us is to make clear what is -- what are those numbers, the 30%, the 15% and then the 25%. The 30% in consumer and commercial means the number of clients that have -- that are not overdue and that have credit installments for the next 3 installments, meaning that clients that have installments for the months of March, April and May. So we did this campaign for those clients. The numbers that we expected were something around 25% to 30%. We are on point on consumer, meaning that 30% of our clients that were eligible to do this rescheduling, they took it. 15% of our mortgages, I think this number is going to be high. The expectations that we have, it's something around 25% to 30%. We started the mortgage last week, so in 1 week after we did with consumers. So I think it's fair to say that 15% will rise to something around 30%, 35%, including this, for mortgages. And for credit cards, I think it's 20%, 25%, and we are comfortable with the numbers. Remember that for credit cards, normally, in April, we already have this for our clients. Remember that clients tend to pay the -- concentrate their bills during the months of March and April here in Chile. So this -- that we did for minimum payment of credit cards, it's not different from something that we did in 2019 and in 2018. So I think in terms of acceptance rates and effects of credit that we have on this, it's something that we know, what's different in terms of commercial and mortgages. So answering your first question, how this will be accounted in the financial statements, at the end of the day, what we are postponing, this -- the last -- the next 3 installments for consumer to the end of the contract with the rate that it's a little bit lower than what we have for the actual contracts with those clients. But it's still -- it's something that generates spreads for us in order to pay for eventual cost of credit. So it's not something that doesn't generate returns for us in terms of helping us to pay for the cost of risk that we have associated with this. So I think it's part of the process that we normally have of rescheduling credits. I don't see any accounting effects due to this. We checked with the CMF, and they were on board for us and for all the banks in the market that that doesn't generate any account effects of higher provisioning or any other segregation of the type of credit that we are doing. So it's just making sure that we reschedule these free cash flows to the end of the contract. Of course, this increases our credit risk because you take your probability to default with some more time in the future than you originally had. We've been provisioning our models according to expected loss, as I mentioned. But I don't think that at this point, with the information that we have, it generates some impact different from what we have. And the main reason is that -- remember that we are doing this for clients that are not overdue. So I don't think it materially changes the mix or the credit risk that we have.

The second question from Jason, it says, "Gabriel, please compare what Itaú CorpBanca is seeing from Chile's regulator, Central Bank and government, with what are seen from Colombia's regulator, Central Bank and government."

Sure. I think that we did a benchmark, taking a look in Argentina, Uruguay, Paraguay, Chile, Brazil, Colombia. And pretty much, every regulator, it's very active in terms of increasing the liquidity of the market, in making sure that there are credit lines available for small businesses to continue to pay their payroll. So I don't think that's that different. I think that the Chilean government was very active at first in terms of this credit offering from the banks to their clients and their impacts on the regulations that we already see in terms of managing the capital cycle that we have that is anti-cyclical, right? When the implementation of Basel III standards, it is per se anti-cyclical. So postponing that, I think it helps on not creating a strain on the market. We saw this in Chile. We saw this in Brazil with the reduction of the capital conservation buffer. So I think all regulators, they are using the same tubes in different times and in different depths, I think. But I think that everyone is working with the same intention here in making sure of 2 things: first, protecting the banks in terms of making sure that you do not affect the supply of money to the economy and credit into the economy; and the second one is protecting the businesses as not to have any impact on the chain of production, the capability of production after all this goes through. I think that from what I see in Colombia that is a little bit different, I think that the impact -- the first impact on the first week that we saw from the pandemic, the impact on liquidity in the market was a little bit tougher where -- and then we take a look at the prices of the sovereign bonds locally, they had a higher impact, especially because you saw the asset management businesses having to sell their positions in bonds and credit in order to pay for withdrawals. And then the Central Bank entered and generated lines in order to help stabilize the price of money markets. But it's not different from what you saw in Chile during the crisis. I don't think that it happened in Chile right now because the mechanisms that the Central Bank put in place during the financial unrest were already there. So you didn't see any impact. But it's not different from what you saw in money markets in Brazil, what you saw in money markets in the U.S. So I think that everyone is doing a good job on this.

Our next question is coming from BTG, Alonso Aramburú. Can you please provide an update on the Colombian operations and measures taken in that country? And do you have any sensitivity on how much can cost of risk behave as economic activity is reactivated close to 100% in the second half of this year?

Sure. Alonso thanks for your question. As I mentioned before, I don't think that the impact that you saw in Colombia is any different from what you saw in Chile. The measurements adopted by the government are not different. I think it changes a little bit in timing and the depth that those measures were made. In our case, what I think it changes is that remember that we were -- we are still ramping up commercial activity in Colombia. We saw some banks that generated a growth around 25% to 30% in consumer last year. We generated something around 6%, 7% when you take out the discussion of payroll loans in Colombia. So I think that when I take a look at our portfolio in Colombia, all the management that we did throughout the past years in terms of adjusting risk appetite, adjusting provisions, making sure that we grow in a responsible manner, I'm not that concerned in terms of a major impact different from what I see in terms of what is the market average here or the expectations we have in Chile for Colombia. I think that cost of risk will go up. I think it's a fair -- good assumption. I think that already, when you take a look at the guidance that we did, we already incorporate some more cost of risk for our operations in Chile and in Colombia. But we have to manage through the cycle, as I mentioned. Colombia, they are also discussing the same measurements that you saw here in Chile in loans for small and medium businesses guaranteed by the state. There is all this discussion of what can be done, what is the level of guarantee, what are the costs. As I mentioned, I think that everyone is looking at the same things. I think what matters at the end of the day is how you have those levers to make it work. Because to enter new credit in small and medium businesses without any support in terms of credit, especially for some businesses that are more affected, I think it would be good to have a more systematic approach for that with the involvement of the government, especially on the guarantees that they already have in place for some of those businesses. Those discussions continue. I think that we're going to see, especially the details of how you can operate them throughout the next week. But I don't see then again different from Chile, especially on our portfolio. I think perhaps on the market as a whole, there is a different discussion. But then when I take a look at our portfolio, I'm fairly comfortable with the management of cycle that we did.

Our next question is coming from Santander, Claudia Benavente. Do you have an estimate on how much government credit line you will provide? Would it imply an implicit increase in credit risk for pre-existing loans considering this should be paid in a first instance before the existing stock?

Claudia, thank you for your question. I think that's the discussion that we are having right now. We discussed, as you saw with the government, this credit line that was announced by the President yesterday. We are still ironing out some details of how it's going to work. The idea here is, yes, to participate in it and to offer them to our clients. We still don't have an estimate of what is the demand to that and how it will affect. It does affect the risk of our existing loans. I think that the main -- but I would be cautious in how did this affect because you didn't change the guarantees for that, right? Because if you have a business, you have a set of guarantees, you have some mechanisms in place, I think that the concern that the government has, and I think it's a very just concern, is that taking this new money in order to pay all debt and without helping the business to manage through the cycle, I think it doesn't help anyone. And I think that's not the idea of this government support. And I don't think that any bank has the will to make this work in that sense. So we want to make sure that the government credit goes in order to make the business functioning during this period. Of course, it creates a higher leverage. And then again, Claudia, as I mentioned, I think that the greatest start here will be to analyzing the different businesses and the businesses that can take the leverage. And we will need more time in order to pay the debt because of this excess leverage in business that are more effect to it and then have to restructure their capital structure or have just to structure the business as a whole. I think that what we always did in our credit concession committees and the credit committees and how we take a look at the risk, we always put credit and all the provisions that we do it within stress testing for our clients. So the credit policy works in a way that we need to take a look at different scenarios of stress for the current capital structure and making sure that it's not adequate to the risk appetite that we have, that we incorporate different guarantees in order to manage risk. I don't think that our guarantees are directly affected by this. Maybe you're going to have businesses that are more leveraged. That's why I think it's very important to separate both groups. I think in some groups of clients, it will be a problem because they are more leveraged and without a strong footprint in the market. But then again, I think that we have to incorporate this information as we do it. Then again, we had this discussion early at the end of next -- last week. So we are incorporating this as we have more information. But I think it's going to work fine. I'm very constructive on the need for it and the way that the government has supported. I think it's fairly important because then, again, I think it's more important to have the business operating and being ready to a moment that it comes back. And it will come back. We can have a discussion that it will come back in 2 months, in 3 months, in 4 months, but this will pass over. And the most important point is that we have this business operating and being able to deleverage through time. I don't think it's different from what we saw in 2008 for some sectors, in 2001 for some sectors. But this is newly more systematic. So we're being very, very attentive to it.

We will take 2 more questions coming from JPMorgan, Yuri Fernandez. I think the first one was already answered, but I will read it anyway. Can you please discuss the dividend payout policy in this environment? And I will go immediately with the second question regarding renegotiations. Can you please comment how renegotiated loans are behaving? What was the increase in the number of requests? How much it represents of your loan volume?

Okay. Take a look at the first question, the dividend payout policy. We have the same policy of dividends, of maintaining 120% of the minimum or the average of the 3 banks. We haven't changed that. The thing is how do you measure that. It's according to the capital regulations that we have right now or in Basel III. We have to manage this according to both of them: one, in terms of the expectations; the second one in terms of what is happening to the market right now. As management and the Board of Directors, the guidance that we issued to shareholders was a payment of 30%, which is the minimum regulatory. I don't see that changing as that is an important part of the capital retention process that the bank needs to have in order to ask through its own capital generation goes through Basel III risk appetite. On the other hand, what happens this year is that shareholders took a decision based on the current capital regulations and the agreement they have as the shareholders' agreement of Itaú and CorpGroup. I think that what's different for next year on this mechanism, I don't think that the mechanism changes, but the output of those mechanisms can be different. Remember that they are changing the banking regulations in order to give more time for the banks, but they are not changing the implementation of the Pillar 2 of Basel III. And that means that the CMF will have mechanisms available to them in order to manage the dividend payout of the bank. So I don't know if you saw this, but last week was an interview from the Vice President of the CMF, especially saying this, that the market should be aware that, meanwhile, they are changing the date of the implementation of Basel III as a whole. The implementation of Pillar 2 remains for the end of this year. And I think that with that information, it changes a little bit of the dynamics of the shareholders' agreement and which means that probably you're going to see a 30% dividend payout, which is the minimum based on -- as you are incorporating Basel III requirements within the dividend policy that the bank has. You mentioned there was a second question, Claudia. Can you repeat that to me?

Yes. I will. Yes, sure. The second question was -- just a minute -- from JPMorgan. Renegotiation. Can you please comment how renegotiated loans are behaving? What was the increase in the number of requests? How much it represents of your loan volumes?

Okay. As I mentioned, we have 30% of consumer from the installments that we have right now, 15% in mortgages. I think that's very important to say that meanwhile, in terms of the amount of installments that we are talking about right now, 30%, I think it's a large number. And it's based also on the structure that we set that it's good for the clients in terms of the yield that they are paying. In terms of the loan volume that represents, it's fairly small for our portfolio. So I don't have the numbers here as a percentage of the portfolio. But in consumer, you're -- we're talking roughly something around $40 million in terms of the installments that were sent to the end of the portfolio that was for 100% of the 3 installments or 30% of the clients. So I don't think -- given that there is 36 months in an average consumer credit, for the whole portfolio, that's not a big number. So I would not read too much. I think that one of the mistakes that the market can have on this, it's reading too much cost of credit in this reschedulement added or renegotiation. I think that's part of the process that we have. Normally with clients, of course, the crisis make this more intense. But remember that for mortgages, the average loan-to-value that we have for our book is something around 60%. So even if you -- within the crisis, price of the real estate falls 40%, I'm still on par with the guarantees that I have. So if I'm rescheduling this, it's much more as a benefit for the clients in terms of the cash flow as the impact of the economic value that we have for the credit. In consumer, you don't have that much guarantees. But as we are doing for the clients that are paying their credit, I mean then again, it's just adjusting levels. Then again, I think that you're going to see a cost of risk rising. If you take a look at it, I think it's going to be lower than what we saw last quarter. This quarter, you already saw some of those numbers, and you saw the credit provisions as a percentage of our loans. And remember that -- that's why I think it's important to discuss those numbers with the MD&A because if you take accounting numbers and take a look at provisions, you're going to see higher provisions, especially for the credits that we have in U.S. dollars. But we have a hedge for that. So in the effect of cost of credit of the bank is going to be lower than you see on the accounting line of the provisions. So be very careful when doing calculations or making assumptions regarding cost of credit based on the numbers that we have so far and also your expectations regarding these deferrals of -- in reschedulements of credit because it's lower than what you see. I think that the main message here, because I see more questions about the credit quality and everything, and I think it's a fair concern right now, is that we were well provisioned and we always take into consideration cycles and stresses in order to do the provisioning of our credits. We have to manage through the cycle. I think there's reschedulement of some of those credits, and most of those credits will not impact cost of credit throughout time. But you're going to see businesses that are more leveraged, and you're going to see a higher cost of credit. Please remember that for the last years, we already saw higher cost of credit based on events. And I think it's easy to overestimate cost of credit, especially in our case, based on the concentrations we had in the portfolio and the risk management we saw. I think for sure, we are not going to see a cost of credit around 0.8% that we saw in 2008 and which is, I think, that the guidance that this bank has for a long term. But I mean we saw, at some point, the bank having 1.5%, 1.6% cost of credit throughout other processes. The guidance that we had was around 1.2%. I think that in the first quarter, we were on par with that, a little bit lower than that. That's the numbers that we need to take a look at it. And of course, one quarter, it can be more pressured. But I would be very careful in taking numbers from our stress period in terms of credit and doing a stress over a stress. I think that some of those numbers will not add. But I think it's a more challenging credit cycle, that's for sure. That's it, Claudia, from the questions we had. I think that we passed 1 hour in here.

Yes.

So fantastic. Thank you so much for your attendance. Thank you so much for your questions. We are going to be back in a few weeks to discuss the results of the quarter, then with the managerial numbers with much more detail, and I think it's going to be a richer conversation in terms of the numbers we have. As always, Claudia and myself are totally available if you need any questions, and we see you in a couple of weeks. Take care.