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Banco de Chile (BCH -1.09%)
Q3 2019 Earnings Call
Nov 7, 2019, 11:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello everyone, and welcome to, Banco de Chile's 3Q '19 Financial Results Conference call. If you need a copy of the press release, it is available on the company's website. Today with us we have Mr. Rodrigo Aravena, Chief Economist, and Senior Vice President of Institutional Relations; Mr. Pablo Mejia, Head of Investor Relations; and Daniel Galarce, Head of Financial Control. Before, we begin I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed note in the company's press release, regarding forward-looking statements.
I will now turn the call over to Mr. Rodrigo Aravena. Please, you may proceed.
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
Good afternoon everyone and thank you for attending this conference call. Today I'll begin with an overview of recent trends observed in both the Chilean economy and banking industry and then Pablo here our Head of Investor Relations will provide a deeper analysis of the performance of Banco de Chile during the last quarter. Please turn to slide number three. The annual GDP growth rate has a positive evolution this year increasing from a weak 1.6% in the first quarter to 3.3% in the last quarter. This reflected an important resilience relative to the rest of the world where the GDP growth decreased in most countries. The softer performance of Chile relative to other OE3 countries can be seen in the table chart. On a sequential basis, the economy grew 2.9% annualized in the last quarter even though the lower-than-expected growth in September. Additionally, this rise has been boosted by the weak comparison base from 2018 causing a positive statistical effect.
As Chile is a most open Latin American country to the global economy it's worth to understand how the recovering took place. The answer to this question is simply the result of our policy framework. Thanks to the low and stable inflation the Chilean Central Bank has been able to reduce the monetary policy rate this year from 3% to 1.75% which is one of the lowest rates in the world. In the bottom left chart, you can see how expansionary the momentary policy rate in Chile is compared to other countries in the region. It's interesting to see that Chile is the only country with a negative interest rate in the region. The shipment inflation has remained below the target of 3% since late 2016 as a consequence of their below trend GDP growth despite the recovery in the last quarter and the stable growth in real wages. As it's a part of knowledge since mid-October in Chile we have seen a social unrest that, leading the MS in Fastrack and lower activity in different sectors mainly those related to consumption and services. In this context, we think it's important to analyze the potential impact in both the overall economy and in the banking sector.
On the matters on this slide undoubtedly there will be a drop in economic growth and confidence measures. GDP growth for October which will be released on December two will probably be negative anticipating a lower expansion for the whole year. In response of this, the government has announced several measures such as an increase in minimum pensions and lower income among others. Additionally, the government implemented several changes in its cabinet in order to address the new agenda. Additionally, this has been a preliminary agreement to introduce changes to the current tax system by increasing taxes to high income individuals removing the integration of the income tax regime and implementing tax benefits to SMEs. This tax proposal aimed to finance the rise in future experiments in order to mitigate the impact in the fiscal deficit. Nevertheless, it's important to mention the existence of sudden all funds and other freight cost savings equivalent to almost $30 million allowing the possibility of financing fiscal measures. As a result of these events, Banco de Chile had a direct impact in its infrastructure resulting in nine branches and 89 ATMs with a severe damage which represents a minor part of our distribution network. We don't expect a material impact to our results attributable to this damage.
Additionally, we are aware about the existence of other indirect impacts that may temporarily affect our figures associated to lower activity and origination and collection as a consequence of several constraints for the development of normal activity in the country. Beyond this final impact, I would like to highlight the absence of material impact on customer service. Thanks to the commitment of our employees and the effectiveness of our detailed channels our customers were able to undertake most of their transactions. In this environment, we have modified our baseline scenario for this and the next year. Please move to slide number four. In relation to the economic growth, we have reduced our forecast for this year from 2.5% to 2% as a consequence of the expected short-term negative growth. For the next year, we reduced it from 3% to 2.5%. We also expect inflation to remain below the target of the Chilean Central Bank which is 3% at least until 2021. Specifically, we expect the CDI to end at 2.6% in 2019 and the following year. In this environment we expect the Chilean Central Bank to continue reducing the interest rate. In the last meeting, the board cut the interest rate to 1.75% in line with market expectations.
According to the press release that accompanied the decision the Chilean Central Bank sees room for further rate cuts. Therefore we expect the interest rate to be at 1.5% at the end of this year. Now I would like to discuss briefly the evolution of the Chilean banking industry. Please turn to slide number six. As you can see on the chart on the left loans in the Chilean banking system have grown almost 10% over the last 12 months and accelerated to 3.1% quarter-on-quarter or 12% annualized. On a sequential basis, loan growth was driven by an acceleration in commercial loans that drove almost 15% quarter-on-quarter annualized followed by mortgage loans that expanded yet other 11% quarter-on-quarter also annualized. In terms of results, the Chilean banking industry posted a net income of CLP 624 billion in the third quarter well above the level recorded last year. The higher level of growth was partially due to the incorporation of some portfolios into the banking industry from retailers. In terms of return on assets, the industry maintained its profitability levels stable at 1%. This shows the resilience and proven capabilities of the Chilean banking industry to adopt strategies efficiently in order to cope with a less dynamic economic cycle.
Now I would like to pass the call to Pablo who will go into more detail about our financial results. Please turn to slide eight.
Pablo Mejia Ricci -- Head of Investor Relations
Thanks, Rodrigo. Once again we were able to lead the quarter in terms of net income with CLP 152 billion. It's also important to highlight the large gap in profitability in terms of net operating income as a percentage of interest-earning assets as you can see on the chart on the right. Our consistent strategy and customer focus have allowed us to deliver sustainable and superior profitability for our shareholders. As shown on the -- please turn to slide nine. As shown on the prior slide net income reached CLP 152 billion equal to a return on average equity of 17.8% this quarter and year-to-date CLP 446 billion with a similar ROE of 17.7%. As you can see on the chart on the bottom of the slide the 19% increase achieved in the third quarter net income versus the same period last year was due to strong operating income growth together with lower loan loss provision expenses which more than offset a moderate rise in operating expenses and taxes. On the following slides, I will go into greater detail how our shift toward the retail segment together with higher productivity cost control and stable risk levels are contributing to these positive numbers.
Please turn to slide 10. Operating revenues increased 8% year-on-year as a consequence of an expansion of our customer income that rose 13% year-on-year while noncustomer income dropped 11% year-on-year. In turn, the rise in customer income was due to higher net interest income thanks to effective the commercial strategies that leverage business intelligence to us to concentrate growth in key market segments and products that provide more attractive returns with adequate levels of risk. Customer income was also driven by an important increase in fees that rose CLP 31 billion as a result of first insurance brokerage that was up CLP 18 billion related to fees received from joint venture we made recently and the year-on-year growth of 18.7% in written premiums; and second transactional fees from services that grew CLP 10 billion from credit cards and ATMs. Additionally, mutual fund management fees also advanced CLP 3 billion equal to a rise of 15% year-on-year. This also permitted us to partially offset lower noncustomer income revenues owed mainly to the lower effective inflation on our U.S. structural GAAP position as you can see on the reduction of our net interest margin on the chart on the top right. Lower inflation took place in conjunction with higher counterparty value adjustments for derivatives which more than offset an improved performance of our trading and AFS desk that benefited the sharp decrease in nominal and real interest rates.
Please turn to slide 11. Total loans grew 9.3% year-on-year in the third quarter as seen on the chart on the left led by an increase of 12% in both SME and consumer loans which are our target markets. Additionally, wholesale loans rose 5.6% year-on-year and 4% quarter-on-quarter thanks to the higher dynamism of the multinational infrastructure banking unit in the last quarter. It's also important to highlight the benefits of having a well-diversified loan book. When one segment has less dynamic demand or when there's not an adequate balance between risk and returns other segments usually offset that weak performance as has been the case in recent years. Regarding SMEs, we continued our focus of building a strong and solid customer base in this unit. It's important to note that we consider that we have the best SME portfolio in the industry with the lowest NPLs. This has allowed us to consistently record through all the cycle's low loan loss provision levels which ultimately contributes to maintaining high and sustainable profitability for our bank. We are confident that by providing the best experience to our customers based on deeper use of business intelligence with top physical and online channels coupled with prudent risk policies will permit us to continue growing with favorable risk return equation that Banco de Chile has become known for. As this slide shows, we have been able to grow by maintaining the best funding structure in the industry.
Specifically, we continued leading the sector with the lowest financing costs as you can see on the chart on the top right thanks to our wide and stable demand deposit base from both retail and wholesale customers that chose to bank with us over our competition. This is not a coincidence. We are received as the safest bank in the industry a situation that's confirmed our superior corporate risk ratings of A from Standard and Poor's and A1 from Moody's reflected in lower-risk premiums reached when we issue bonds. This allowed us to place bonds in the local market and overseas in favorable conditions. In the local market, we issued approximately CLP 716 billion vessels with tenures ranging from four to 12 years while we placed CLP 120 billion abroad with maturities between 12 and 20 years in markets such as Hong Kong Australia and Peru. It's also important to mention that all of these placements on foreign currencies are hedged to neutralize the impact of foreign exchange and interest rate changes.
Additionally, we also issued this quarter's subordinated bonds for over CLP 200 billion in Chile with maturities of around 20 years allowing us to improve our capital ratios. It's worth mentioning that the subordinated bonds that we placed in the local market with spreads of only 10 to 15 basis points above senior bonds makes it clear that the low-risk premium that we have and how this translates into a competitive cost of funding. Responsible growth and prudent risk management are fundamental pillars of our success and an essential part of our long-term strategy. Please turn to slide 12. As you can see on the chart on the left loan loss provisions dropped from CLP 95 billion in the third quarter of 2018 to CLP 89 billion in the third quarter of 2019. The main driver for the reduction in provisions was chiefly related to the Retail Banking segment that decreased by CLP 24 billion owing to higher risk charges incurred in the third quarter of 2018 as a result of the update of our group based credit risk models and the implementation of a standardized risk matrix for commercial loans evaluated on a group basis. This decrease was partially offset by volume mix positive credit behavior of wholesale customers last year and the negative impact of the depreciation of the Chilean peso to the U.S. dollar in the third quarter of 2019 altogether totaling CLP 18 billion year-on-year.
Additionally, as you can see on the charts on the bottom of this slide our loan portfolio continues to perform substantially better than our peers in terms of credit quality as measured by delinquency ratio and we have a considerably higher coverage. If we include additional provisions our coverage ratio would actually increase to roughly 251%. We are confident that our proven track record to manage risks should mark a clear difference with our competitors. Our prudent risk policies and the important resources that we have put in place allow us to have a proactive risk management approach that is deeply present throughout the entire life cycles of our customers. This no doubt assists us to identify risks quickly and implement strategies to minimize our exposures. Please turn to slide 13. As you can see on the chart on the left total operating expenses grew by 5% year-on-year. This rise is attributable to administration expenses related to IT and maintenance. More specifically the expansion IT cost was explained by external advisory services software licensing and IT support improvements in cybersecurity and the implementation of strategic projects.
The higher maintenance expenses were related to the expansion of our ATM network that grew 26% year-on-year. Through different projects that are aimed at improving service and maintaining a permanent focus on cost control we have optimized our operations and we are beginning to see these advancements in productivity reaching an efficiency ratio this quarter of 44%. Nevertheless, we believe that we have room to continue improving operating expenses. The chart on the bottom right shows how we compare to our main peers. We are very confident that through our new service models the implementation of business intelligence tools together with digital initiatives to improve and automate commercial and operative processes should be able to continue improving our efficiency ratio in the long term. Now I would like to take a few minutes to discuss what is happening with Basel III in Chile and how we are prepared to implement this new regulation. Please turn to the next slide number 14. As you know the implementation of Basel III is one of the most relevant regulatory changes that is taking place at this time in the Chilean banking industry and will converge the sector to international standards.
Over the past years, we have made an effort to grow our capital base based on profitable growth a prudent risk -- and a prudent dividend policy which was adjusted in previous years to 60% of the distributable net income. Thanks to the strategy our Tier one capital ratio reached 11.1% with almost 0 assets that deduct from capital under the current regulation. It's also important to mention that we are the bank with the highest level of additional provisions equal to 0.7% of risk-weighted assets which are permitted to be used during the phase-in period as additional Tier one capital. During this quarter we increased our subordinated bonds amounting to CLP 217 billion which can be classified as additional Tier one capital during the phase-in period of Basel III. So far the Chilean regulator has published some specific rules for comments including methodologies related to the calculation of operational risk-weighted assets and to determine the systematic importance of banking institutions or systemic buffers.
Even though the proposed methodologies lack enough detail to determine our actual position preliminary estimates indicate that we would be subject to a capital charge of operational risk of around 5% range for our current risk-weighted assets which is in line with our former expectations. Similarly the proposed methodology for determining systemic relevance of banking institutions would translate into a capital charge of 1.2% to 1.7% range that is lower than the 2% rate we currently face on the Basel I. Finally based on the information that we know today we expect that in the coming quarters we will have more information regarding our fully loaded capital position on the most important part of the regulations related to risk-weighted assets are put in consultation. All in all, we are confident that our capital position will allow us to face successfully the new regulatory requirements. We strongly believe that the consistency of our long-term responsible growth strategy will bring fruit in the future. Please turn to slide 15. In recent years we have focused on strengthening our sustainability and corporate reputation we are strongly convinced that we must build strong relationships not only with our clients but also with our other stakeholders.
This has become a critical part of our strategic plan and long-term sustainability. In this context, we are proud to be the bank with the best ESG disclosure in the country as can be seen on the graph on the left. This index which is available on Bloomberg it's a measure based on the information we provide for environmental social and corporate governance. This is a consequence of several measures that we have taken during the last year and some of them include on the social level we have always been committed to the development of Chile. Our contribution has been present in the rehabilitation inclusion of people with disabilities in the workforce and the promotion of entrepreneurship and supporting high-quality education for more vulnerable people. We have also supported since the beginning 40 years ago Telethon which is the most important charity campaign that exists in Chile. We have begun to carry out different activities related to environmental sustainability. And along with several activities that promote environmental awareness through recycling campaigns efficient use of energy and paper among others.
We also -- it's important to mention that we also issued the first green bond in our history. Since 2014 we have published in addition to the annual report and the 20-F report a sustainability report which has been continuously improved over time. This report which is available in both Spanish and English has GRI four standard in line with the global best practices. Given the improvement in the quality and quantity of information that we make available to the market this year we were recognized by the DEVA Institution for having the best annual report and sustainability report in the local financial industry. These actions are part of many others taken in order to strengthen the long-term sustainability of our bank. For more details, you can read the annual report and the sustainability report both of which are available on our website. Finally before moving on to questions. As a consequence of our consistent strategic priorities which are based on digital transformation ongoing penetration in the retail segment, we are confident that we will continue delivering positive results in the future.
Thank you. And if you have any questions we will be happy to answer them.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question will come from Jason Mollin of Scotiabank.
Jason Mollin -- Scotiabank -- Analyst
Hello, thank you. My first question is on the macro outlook. Rodrigo, perhaps you could talk to us. You mentioned the outlook for real GDP next year in the 2.5% range. Can you talk given the recent developments can you talk about the discussion around potential GDP for Chile? Can we get back to the 4% level going forward? And my second question for you Pablo would be you mentioned on the slide about efficiency you mentioned digital initiatives. If you can provide some details on where the bank stands now and perhaps some metrics showing the trends in this area?
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
Okay. Jason, this is, Rodrigo Aravena. Thank you very much for your question. With respect to the question of the economic environment, I think that we have to consider three different things OK? First of all, in the very short term I mean in the economic growth of October perhaps November we don't have enough information there is a possibility of having a negative economic growth for October. We can't rule out and he must take which is the monthly GDP figure of around minus 1% OK? And, we can't also rule out the possibility of having a pure economic growth for the fourth quarter as a whole. In short, we will likely have negative news in terms of employment growth, etc. in there for the fourth quarter. With respect to the 2020 economic growth, I think that it is very reasonable to expect a below trend economic growth. In the previous conference call we were expecting an expansion of the GDP of around 3% which was in line with the potential GDP growth, but now we are expecting a 2.5% but we have a downward bias in this estimate which means that we can't rule out lower-than-expected growth because we are aware that there are some risks in the global economy as you know the international monetary funds, for example, we used the forecast for economic growth, for the global economy, for the next year, which is a negative news for us. And additionally, we have more uncertainty in terms of the evolution of the global economy as a consequence of recent events.
Finally with respect to your question about the potential GDP growth we don't have enough information as to have a final estimate in terms of our capacity of growth in the long term. I'm saying that because in one hand there are some reasons from the global economy supporting a more negative bias for growth. But perhaps you remember in the last monetary policy report the central banks estimated that as a consequence of the integration in Chile we have a better capacity of growth because of the impact on the labor force. The key question here today is how will be the reconstruction activity? How will be the fiscal policy and other policies that we are discussing now in Chile? And therefore I think that is reasonable to expect. So far based on the available information that GDP growth in Chile remains around 3%. But for sure in the next conference call with more information, we will likely have a more accurate estimate in terms of our capacity of growth for the long term.
Pablo Mejia Ricci -- Head of Investor Relations
In terms of expenses, we are expecting for the next year is something around low single-digit growth similar levels of efficiency that we had this year. And we haven't changed our targets that we have spoken before. Our intention of where we would like to be is still continuing to maintain and actually I mean to improve our efficiency level by three percentage points. And how are we doing that? Well, we have implemented many different projects in the past and those are bearing fruit today. So over -- since the beginning of 2015 we have implemented different tools and initiatives in order to digitalize the bank better in order to automate the back-office processes and that's what's allowing us today to sell more or originate more loans which are not only focused on originating more loans but also in acquiring new customers in all the segments. So some of the more recent projects that we had implemented a new preapproved loan model for the SME book which has been very successful this year.
We also are implementing a new service model in the branch network which is also very positive in terms not only in improving the cost base but also improving the origination selling in those branches. And it's also improving the customer relationships and net promoter score. Looking forward we are looking at continuing to reinforce all of our apps our website which is already rated number one in Chile but we think we can continue improving and giving them better customer service and providing the parts and services to the channels that our customers are demanding. And we believe that there's still room to continue improving the back-office automation of processes in order to reduce -- to continue growing without the need to increase expenses in the same way.
Jason Mollin -- Scotiabank -- Analyst
That's helpful. That's a good color. Any kind of metrics that you would talk about in terms of percentage of transactions taking place digitally the trends there versus let's say in the branch or any kind of digital sales metrics that you could share?
Pablo Mejia Ricci -- Head of Investor Relations
Yes. In terms of metrics in terms of online brands online and branch monetary transactions so actually money that's been moved around. We have -- in total, we have in the branches decreases generally of around the 7% range. While online which includes the mobile phone and the website is increasing 22% or just -- over 20%. What's really interesting is the importance of mobile banking. So if we look at the monetary transactions in mobile banking it's actually -- it's probably expected this year or very soon to be the most important channel in terms of transactions. Today it represents almost half of the online transactions and the mobile monetary transactions are growing over 40%. While the website is growing at a slower rate of around 10%. So it's been very successful the online banking for us.
Jason Mollin -- Scotiabank -- Analyst
Thank you, Pablo.
Pablo Mejia Ricci -- Head of Investor Relations
You're welcome.
Operator
The next question will come from Claudia Benavente of Santander.
Claudia Benavente -- Santander -- Analyst
Hi, I was wondering if you could provide us more color on what you expect a little bit on the cost of the risk side? Like trying to get a little bit of sense talking to other banks as well many -- some have indicated that maybe there could be some deterioration as the collection process has become a little more challenging due to the current crisis that we are leaving. So I was wondering if you're facing any challenge in that respect?
Pablo Mejia Ricci -- Head of Investor Relations
Based on the information that, we have today we expect that the long-term loan loss provisions should remain similar to the recurring rate that we have had in the past of around 1.1%. Obviously nevertheless the temporary volatility depending on the current events or on the economic cycle can adjust that slightly. And obviously, during these times, it's a little bit more difficult to do collections. So that could have an impact but we expect that this is more of a temporary event more than something that we would expect to be long term. Also as we always mention I think it's super important to mention that we put a significant amount of resources in order to control risks and to implement prudent policies. So, we are always looking at growing responsibly and we always focus to have a good relationship between risk and return in all the segments that we provide services for. And I think that's one of the main competitive advantages of Banco de Chile. And if you look at our track record it's something that stands up.
Claudia Benavente -- Santander -- Analyst
Great. And one more question if you can give us again more color on the Basel III requirements? You have an excess of capital should we expect Banco de Chile to pay an extraordinary dividend? Or you would be -- feel more comfortable of holding -- on holding in an extra capital position to face any I don't know macro uncertainties? Thanks.
Pablo Mejia Ricci -- Head of Investor Relations
We think that we are well prepared to implement Basel III in Chile but it's very difficult to give guidance or understand how they would be implemented in Chile without one of the most important pieces of information of the weights of the risk-weighted assets. So today what we have done is improved our capital position and we are comfortable where we are at today. And in the following quarters, we will have more information regarding our capital position.
Claudia Benavente -- Santander -- Analyst
And what would be a comfortable level for the CET1 ratio looking forward like a minimum CET1?
Pablo Mejia Ricci -- Head of Investor Relations
We are -- we still have to have all the information from the regulators in order to understand well our requirements and how we would like to maintain Basel III within Banco de Chile.
Claudia Benavente -- Santander -- Analyst
Thank you.
Operator
The next question will come from Neha Agarwala of HSBC.
Neha Agarwala -- HSBC -- Analyst
Hi, thank you for taking my question. I wanted to ask about the fee income you saw very strong growth in noninterest income this quarter how much of that is sustainable? And what is the level that you expect for this year and next year? And primarily insurance which has been growing at a very good pace. What is the reason for that growth? And what is the outlook for that? And my second question is about your loan growth. It has been quite stable at around 9%. With the current unrest in today do you see a slowdown in loan growth? Would it be more supply they were driven or demand driven? And any specific pocket of concern that you see for yourself?
Pablo Mejia Ricci -- Head of Investor Relations
In terms of -- for fee growth, we expect in the medium term high single digits level. But if we look at what's been happening today the main growth -- the growth that we have seen is through insurance as I mentioned that we entered into a joint venture with an insurance company and that's been providing us healthy fee growth. Also, we have had very good fee growth from cards as well as ATMs because we have grown the ATM network significantly and our mutual fund business has been growing quite positively as well with an increase of 15% in assets under management. In terms of loans for us and the industry what we are expecting is obviously -- what we can say because it's important to take into consideration the current situation which is occurring in Chile which is making it a little bit more difficult to do the everyday activities. So this, in turn, is affecting different areas of the economy which is the, for example, retail sales salaries and of course loan originations.
So as Rodrigo mentioned we expect the GDP in the fourth quarter will slow down and that 2020 will be weaker than our original expectations in the past in turn affecting loan growth obviously. So if we -- we also have to review consumer and business confidence levels in order to understand the impact of their origination. But it's reasonable to expect the elasticity of loan growth to GDP should grow slightly lower may be based on the scenarios and 2x in 2020. And we are expecting something around the 7% nominal range for the industry. And in terms of Banco de Chile, we think in line with what I said. We are focusing on growing responsibly and taking care of our risk-return relationship and aiming to concentrate growth in high-quality SME customers as well as higher net worth individuals in the retail segment.
Neha Agarwala -- HSBC -- Analyst
Okay. If I can ask one more question. I noticed that your LDR has been increasing gradually. Any steps that you are taking to improve your funding base and to bring down your LDR? Or that is not a concern to you?
Pablo Mejia Ricci -- Head of Investor Relations
Which indicators sorry?
Neha Agarwala -- HSBC -- Analyst
Loan to deposit ratio.
Pablo Mejia Ricci -- Head of Investor Relations
It's important to mention the loan-to-deposit ratio is influenced by time deposits. So if you looked at the past of Banco de Chile what we have done is we have replaced time deposits for bonds. And generally bonds what we have done is changed the way how we fund the bank in order to take on more dependable funding versus short-term funding which would be time deposits replacing time deposits with long-term bonds to fund the mortgage loan book. So if you look at our loan to the deposit ratio and exclude those mortgage loans it's much more in line with international standards.
Neha Agarwala -- HSBC -- Analyst
Okay, thank you so much for the clarification, Pablo.
Operator
The next question will come from Yuri Fernandes of JPMorgan.
Yuri Fernandes -- JPMorgan -- Analyst
Thank you, gentlemen. I had the first question regarding expenses. If you have any estimates of like the wage reduction how much it could hurt personnel expenses if it's implemented with reducing the weekly hours for 40 or below 40? If you have any kind of estimates on that? And the second question is regarding buybacks. I think it's not a common topic in Chile but what would be the pros and cons of having buybacks at those levels?
Pablo Mejia Ricci -- Head of Investor Relations
In terms of what's being talked about the 40-hour workweek. For Banco de Chile it's not very material because we already have our workforce working at 41 hours and 15 minutes. So, in essence, the loss for us would adjust their daily working hours by only 15 minutes per day. So it's not a material impact for Banco de Chile that changed. But...
Yuri Fernandes -- JPMorgan -- Analyst
But all the employees are 41?
Pablo Mejia Ricci -- Head of Investor Relations
Yes for Banco de Chile. So it's not a -- for Banco de Chile it's not a material -- it's not an issue at all.
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
There's not a material difference between the 40 hours in the average working hours in Banco de Chile. That's the point.
Yuri Fernandes -- JPMorgan -- Analyst
Okay. No, I was just surprised because looking to the unions of the banks I think every bank has a lot of units but the main ones for most banks are 45 to 245 so surprising that for...
Pablo Mejia Ricci -- Head of Investor Relations
Banco de Chile for a very long time has been at this level over 10 years.
Yuri Fernandes -- JPMorgan -- Analyst
Okay. So no major impact on that?
Pablo Mejia Ricci -- Head of Investor Relations
No. And the second question was?
Yuri Fernandes -- JPMorgan -- Analyst
Regarding shares buybacks like if the bank would pass it on buybacks at those levels?
Pablo Mejia Ricci -- Head of Investor Relations
Share buybacks is very difficult in Chile and it's not something that's very common. So it would be something that would have to take into consideration in a future period of time. But it's not something that we are looking into at this time. We can't rule it out obviously. But at this time it's not something that's been discussed with the market anyway.
Operator
The next question will come from Tito Labarta of Goldman Sachs.
Tito Labarta -- Goldman Sachs -- Analyst
Hi, everyone. Pablo, Just following up a little bit on the recent events and I know you kind of lowered the GDP growth for this year. But just any sort of immediate impact that you guys have done in terms of just kind of running the bank in terms of maybe changing your credit granting policies? Any update just in terms of the branches or expenses related to that or delays in opening up some branches and how that could impact the business? I just want to get a little bit of sense of a kind of some of the short-term impact if you can quantify a little bit how that could play out?
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
Give me -- one second, please. I think it's very important first of all to pay special attention to the coming information because we don't have enough information to have a more aggregate evaluation in terms of the final impact on the GDP growth for the next year etc. So far we have some bias in terms of the down work adjustment in terms of GDP growth perhaps in employment as well etc. So what we can say so far is that we are not expecting a material impact in terms of results for the next year etc. What we have to say here is that we can't rule out from adjustment in terms of cost of rise NPS referral in the very short-term as a consequence of -- the -- some constraints for the normal activity in the GDP in this month. However, it's very important to mention that we expect these changes will be only temporary OK? So what we are expecting is a normalization over the next quarter in terms of cost of risk in terms of loan growth etc, etc. So -- give me one second sorry.
Pablo Mejia Ricci -- Head of Investor Relations
And in terms of other areas of the bank P&L fees, for example, we don't think that there's a material impact in those lines.
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
Sorry, one other thing to consider we didn't know not only for Banco de Chile for the industry as a whole is that we will likely have more timing and that is for the next year. In terms of below trend economic growth some pressures in terms of lower interest rates. So we are expecting that the Central Bank reviews interest rates next year we can't rule out that the economy will take a longer time to convert toward potential GDP growth rate. So, all in all, we are aware in terms of some challenges coming from the low -- the below trend economic growth the lower than 3% inflation rates lower interest rates. So we are aware about this challenge coming from the macroeconomic side not only for Banco de Chile for all the industry in general.
Operator
And this concludes the question-and-answer session. At this time I'd like to turn the floor back to Banco de Chile for any closing remarks.
Pablo Mejia Ricci -- Head of Investor Relations
Thanks for participating in this quarter's call. We look forward to the next quarter. Thanks.
Operator
[Operator Closing Remarks].
Duration: 117 minutes
Call participants:
Rodrigo Aravena -- Chief Economist and Senior Vice President of. Institutional Relations
Pablo Mejia Ricci -- Head of Investor Relations
Jason Mollin -- Scotiabank -- Analyst
Claudia Benavente -- Santander -- Analyst
Neha Agarwala -- HSBC -- Analyst
Yuri Fernandes -- JPMorgan -- Analyst
Tito Labarta -- Goldman Sachs -- Analyst
