Hello, everyone, and welcome to the Banco de Chile's First Quarter 2019 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 Arena, Chief Economist and Senior Vice President of Institutional Relations Mr. Pablo Mejia, Head of Investor Relations Daniel Galarce, Head of Financial Control and Cecil Diaz, Investor Relations Specialist.
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 these forward looking statements. I will now turn the call over to Mr. Rodrigo Aravena.
You may proceed.
Good morning, everyone, and thank you for joining us today on our conference call for the Q3 2019 financial results. It's a pleasure for me to share with you our comments regarding the evolution of the Chilean economy and the banking system during the Q1. After that, Paolo Mequia, our Head of Investor Relations will review the financial results of Banco de Chile in that period. Please turn to slide number 3. Chile had a successful 2018.
In brief, we saw an improved scenario with higher growth rate, better quality of employment and an impressive pickup in private investments. Consequently, Chile achieved the best economic scenario since 2012. Specifically, GDP rose 4% well above the 1.8% observed on average during the previous 4 years. A comparison between Chile and both the global economy and Latin American growth can be observed in the other left chart. The recovery was largely driven by private investments, which rose 4.7 percent after falling between 2014 2017.
It's also worth highlighting the lower contribution from fiscal spending, demonstrating that the activity was fully driven by the private sector. During the last few months, however, we've seen less dynamic growth. The beginning of this year was characterized by weak figures with an average pension of around 1.8% in the Q1 after observing a 3.6% growth in the 4th quarter. In this environment, the annual inflation rate has remained low. It was 2% in March due to the 0.1% quarterly increase in the Q1, well below the 0.7% posted 1 year ago.
Therefore, the Central Bank changed its forward guidance for the monetary policy rate after announcing in the March monetary policy report that the interest rate would be stable for the greater part of this year. Now the interest rate is at 3%. Only 3 months ago, the Central Bank considered lifting the interest rate to 4 percent this year. Despite these temporary weakening, it's worth taking into consideration some factors behind these slowdowns. First, the economy was negatively affected by heavy rains in the north of Chile, which reduced the COVID production.
In fact, mining production fell by 5.8% in the first quarter, reducing the GDP growth by 70 basis points in the period. Since this shock was temporary, the contraction in the mining sector, which represents nearly 15% of GDP, will not last for much longer. 2nd, estimates of global GDP has been falling. This was confirmed by the baseline scenario presented by the IMF in a flat our economic outlook, where they downgraded the global GDP estimates to only 3.3% for this year. Since Chile is an open economy, this change will affect our activity.
Finally, the labor market has shown an unusual lag relative to the economic cycle Despite the higher economic growth posted since the beginning of last year, the employment growth has remained subdued, reducing the dynamism of private consumption. In this environment, we've seen a downward trend in GDP forecast for this year. In spite of these factors, we think that the Q1 2019 was the bottom of the temporary slowdown. In other words, we expect in the next quarter the economy to grow faster as can be observed in the other right parts. Basically, our positive view is based on 3 main factors.
1st, since the contraction in the mining sector was led by temporary climate conditions, it's reasonable to expect a positive contribution from this sector in the coming quarters. 2nd, private investment has been getting stronger, which has been reflected by several indicators such as the positive trends in capital goods imports as seen in the bottom left chart and business confidence remaining in the optimistic zone. If this trend continues, we will see positive delever in the labor market contributing positively to the employment and wage growth. Lastly, the lower than expected inflation rate allows the Central Bank to adopt a more neutral bias, which is equivalent to having a more expansionary monetary policy. All in all, we are confident that the economy will resume its positive momentum as we saw last year.
In the next slide, I present our view for 2019 2020. Please move to slide number 4. As I mentioned before, we expect better growth in the future. Specifically, we expect GDP to increase between 3.2% and 3.3% this in the next year respectively. But greater than the positive rate, the most relevant aspect to consider is a good quality growth due to the expected dynamism in private investment as seen in the 2 phase of the first chart on this slide.
We don't expect material changes in the nominal size of the economy as can be observed in the two bottom charts. We estimate the CPI will end the year as slightly below the Central Bank target of 3%, our forecast is 2.7% as a consequence of the persistent output gap of the economy. However, we acknowledge the existence of another buyer in inflationary pressures in the short term as a consequence of the rise in oil prices. We also estimate the inflation to go up to 3% only in 2020. In this environment, we expect the interest rate to remain unchanged throughout this year.
There would be an increase in the interest rate next year only if the economy shows convincing signs of recovery. Now, I would like to go over recent trends observed in the Chilean banking system. Please turn to slide number 6. Loan growth continued strong this quarter with all the product families growing near the 10% level year on year. As you can see on the chart on the right, net loan origination is slightly slowed down when compared to prior quarters in constant pesos, but still maintained a good level of expansion this quarter.
Nevertheless, this quarter was weak in terms of financial results. Net income for the banking industry posted ARS571 1,000,000,000, declining 9% when compared to the Q3 last year. The lower than expected result was mostly explained by the 0 variation in the U. S, which reduced inflation revenues. Additionally, the existence of higher credit risk provisions and operating expenses also affected the overall results.
It's important to point out that the reduction in net income would have been even greater if it wasn't for the incorporation of Presto and CMR credit card business in the banking figures. Even though the quarter was weak in terms of results, there are several factors from a macro point of view sustaining a positive view for the future. As we mentioned in the previous slide, we expect the economy to increase its economic growth in the next quarters, providing additional support for a further expansion in business volumes. Additionally, the potential rise in inflation will contribute to higher revenues. In fact, since the average quarterly inflation will likely be between 0.6 percent 0.7% over the next quarter, it's also reasonable to expect a pickup in revenues.
In this environment, we reinforce our positive view for the future, especially for our banks, which will be analyzed by Paolo Mejia in the next slide.
Thank you, Rodrigo. Please flip to Slide number 8. Net income before taxes for the Q1 of 2019 reached MXN136 1,000,000,000. That was largely explained by the 0% inflation recorded during the period. If we adjust the Q1 of 2019, the same level of inflation from the Q1 of 2018, we would have recorded a similar result as in the same period last year.
To a lesser extent, this flat growth was also due to higher credit risk provisions resulting from loan growth and one off effects as well as higher operating expenses. Additionally, we also posted lower treasury revenues. This was partially offset by strong customer income growth. In the next slides, we'll go into a deeper review of each of these concepts. Please turn to Slide 9.
Despite the 0 inflation for the period, we are proud that we were able to maintain operating income flat year on year at RMB445 1,000,000,000. Thanks to our consistent strategy to grow selectively in the retail and wholesale segments. As you can see on the chart, this growth was driven by solid customer income, which grew 9% year on year. The main drivers supporting this growth were increase in loans in the retail segment as well as the rise in demand deposits, both growing almost 9% on average year on year. We also saw strong fee generation, which rose 16% year on year as detailed on the chart on the right.
This increase in fees was chiefly due to higher net revenues from transactional products because of higher usage rates, greater cross selling and a growing customer base due to effective commercial plans that pursued the increased penetration of high income individuals. We also reached very good growth in mutual fund management fees that were up nearly 10% year on year, while insurance brokerage was up 15% year on year. It's also important to mention that we entered into new agreements to boost our ATM network at this time 345 points of service across Chile. As you can see on this as you can see, we are seeing an important increase in revenues in financial service. Non customer income dropped 35% year on year as a result of a sharp decline in inflation, which negatively impacted the contribution of our structural U.
S. GAAP position. If we have the same inflation as the Q1 of 2018, during the Q1 of 2019, operating income for this period would have been 476 1,000,000,000, 7% more than the same period last year, reflecting a significant expansion of customer income. Additionally, non customer income was further impacted by lower revenues from funding and GAAP related to repricing of short term liabilities, in line with the rise of the overnight rate as well as fewer treasury opportunities that led to less trading revenues. Please turn to Slide 10.
This quarter, total loans grew 9% year on year, in line with improved private investment growth and business confidence levels remaining in the optimistic zone. Retail the retail segment continues leading growth, rising almost 11% year on year, while wholesale loans grew 6.1% during the same period. This breakdown is consistent with our focus of growing faster, more profitable segments. Similar to past quarters, SME loans continued to be the fastest growing segment, increasing at a rate of 12.9% year on year, while loans to individuals were slightly behind, growing 10.2% year on year, thanks to the expansion in mortgage loan book origination of 22.4%. Origination in SME loans grew 15.2% over the same period last year, influenced by a new pre approved SME loans model that was introduced in January.
In fact, pre approved SME loan origination nearly doubled the level recorded last year as you can see on the chart on the bottom right. We expect that the SME book will continue being a driver for loan growth in the coming years, especially since this segment in Chile has low penetration. Consumer loan growth has remained at high levels of nearly 10% year on year, thanks to our solid retail commercial strategies together with our robust preapproved consumer loan model that recorded a 16% increase in originations over the same period last year, allowing us to continue growing at record levels of above BRL450 1,000,000,000 per quarter, further improving productivity and operating efficiency levels. Without a doubt, our growth trend in the retail segment has been accomplished through a business strategy that is focused on reinforcing customer experience by providing superior products and services through channels that clients demand. Please turn to Slide 11.
We have worked actively to enhance our financial services for our customers. We have enhanced customer contact channels as well as streamlined processes and implemented business intelligence tools to drive sales among other initiatives. These have had successful results as you can see on the charts on the right. Current account origination has had strong growth figures, up 9 point 1% year on year, placing us 1st in terms of our peer group and personal checking account origination. We have done this by improving both delivery times of products and sales for account manager, as you can see on the chart on the right of the slide.
Additionally, as we have mentioned in previous conference calls, we are in the process of rolling out a new CRM commercial platform, which is being developed in house and is expected to be fully operational this year. This new platform should not only allow us to improve service quality and customer loyalty, but also should continue boosting productivity and efficiency levels. Nevertheless, all of these results have been much more difficult would have been much more difficult to see if it wasn't for a strong brand as you can see on the following Slide number 12. The banker together with Brand Finance recently published its research on the strongest banking brands in the world. We are very proud to be ranked the 1st amongst Chilean banking brands with an AAA minus rating according to Brand Finance, which means that we have a very strong brand name that is valued at MXN1.7 billion, substantially higher than all of our local peers.
We're also pleased to see that we have risen 17 spots in the global ranking expanding our gap with our peers. This ranking is completely in line with our ranking and top of mind where we ranked 1st with a wide difference to our peers. We also continually reinforce our apps and continue to rank well above our competitors with a rating of 3 point 8 on average on the Apple and Google Play app stores as seen on the charts on the right. When we combine our excellent brand together with our superb customer service as shown by our net promoter score ranking, we can use this to attract new customers more easily and retain customers as shown on the chart on the bottom right, in turn allowing us to grow our loan book at a lower cost and drive fee based services through cross selling initiatives. Please turn to Slide 13.
Continue to be the financial institution with the best funding structure in the country, which is clearly one of our most important competitive advantages. As Rodrigo mentioned, the Chilean Central Bank began this year increasing interest rates with a 25 basis point hike. However, it is likely that the Board will maintain interest rates this year without changes and the normalization process will continue next year. Consensus today points to a level around 3.5% by the end of 2020. We have in turn gradually increased the maturities of our liabilities from 11 to 22 months during the last years, mitigating the temporary short term impacts of the rise in rates.
In the medium term, we expect to have a higher NII as a result of higher rates as our assets reprice and yield curve steepen, particularly in local currency. This is important for all banks, but we are most benefited from the rise in rates since we have the largest portion of our liabilities that are represented by DDAs. As you can see on the slide on the top left, demand deposits represent 27% of total liabilities, where more than half is from the retail segment. This together with a strong credit risk rating has permitted us to post once again the lowest cost of funds in the industry of only 1.8% and allows us to have a very attractive NIM. Please turn to Slide 14 on operating expenses.
Total operating expenses increased 8% year on year, which was due to an increase of Ps. 6,000,000,000 related to higher salaries and other benefits for Ps. 3,000,000,000. Severance indemnities related to organizational restructuring and an increase of CNY1 1,000,000,000 related to variable compensation, in line with high levels of sales of financial products and services. The main driver in administrative depreciation expenses was related to IT projects have been made to improve productivity and operations such as our new CRM platform and to a lesser extent buildings and other maintenance expenses linked to new commercial partnerships undertaken this quarter that will increase our ATM network in approximately 30% this year.
It's important to note also that the application of IFRS 16 did not have an impact on our results. As a result of this, administration expenses dropped by MXN 7,000,000,000 this quarter and depreciation and amortization increased by similar amount as the prior concept of Brent are now reflected as amortization of intangible assets. Consequently, our efficiency ratio increased to 49.7% this quarter, but this was principally due to the negative effect of inflation on operating income. Adjusting operating income with the same inflation level we had in the Q1 of 2018, our efficiency ratio would have reached levels around 46.4 percent similar to the level recorded in the Q1 of 2018. Nevertheless, if we consider operating expenses as a percentage of assets, it's clear that our cost base has evolved in line with our business activity as reflected by our stable cost of assets ratio of 2.5%.
Despite the worst efficiency ratio this quarter, there is lots of room to improve in the future. As Rodrigo mentioned in the beginning of this call, the expected increase in inflation should have a positive impact in revenues. Additionally, after a period of testing and evaluation, are beginning to implement the plan to adjust our service model in our branch network, especially in the consumer finance area, and at the same time streamline processes in order to improve productivity in both the front and the back office operations. These changes will be based on providing a value offering that is increasingly incorporating technology to boost online banking, self-service terminals and branches and universal relationship manager with customers that not only handles the customer's debt but also their savings products. Historically, a relationship manager in Chile only handles customer debt products.
This project will be implemented gradually over the next 18 months and will optimize and will continue optimizing the consumer finance branch network. Please turn to Slide 15. This quarter, we posted a cost of risk of MXN89.2 billion. As you can see on the upper right chart, half of the year on year rise was due to our strong growth, especially in the retail book, that are higher risk, but the returns are also much higher than the average loan book. The other half was originated in an increase in allowances as a result of 2 main factors.
First, our risk model is conservative and is influenced by seasonality effects. In particular, in the Q4 of 2018, we recorded lower than normal levels of cost of risk in line with our low level of delinquencies that were below 1.1%. On the other hand, in the Q1 of 20 19, our NPLs normalized to 1.17%, and as a result, we posted a higher cost of risk this quarter of 1 0.27%. 2nd, incorporation of Salovelli and leader credit cards called CMR and Presto to the banking industry figures added certain variables that impacted risk models negatively, such as indebtedness and delinquencies among others. Nevertheless, we are confident that our cost of risk levels will return to our guidance between 1% and 1.1%.
It's important to highlight that we strive to have the best credit risk policies in the industry with the highest coverage ratios of nearly 200% and the most prepared bank to face negative cycles. We achieved this thanks to the high involvement of our Board of Directors and upper management as well as financial resources allocated to develop our risk strategy. We also believe as a result of these prudent policies that the new SME standard provisioning model will not have a material impact on our bottom line and will be well below the levels reported by our peers in the industry. Finally, I have to emphasize that we are committed to continue growing responsibly, and we are confident that our cost of risk will return to levels around 1.1% in the coming quarters. Please turn to the Slide 16.
As you know, we reached a very important milestone in our history on April 30, thanks to our successful track record. Our shareholders' house with the profits that we generated fully paid off all the debt it owed to the Central Bank of Chile. With this payment, we ended the last traces of the financial crisis that affected Chile in 1980, 17 years before the original deadline agreed with the authorities, as you can see on the bottom of the slide. The final payment triggered to the solution of SM Chile and South, registered shareholders of SM Chile A, B and B. Series of shares will receive approximately 3.4 Banc of the Chile shares, while SM Chile E stockholders will receive 1 bancobachila share for each of their respective shares of SM Chile.
Once this occurs, our free float will increase from 27.7 percent to approximately 44%. This will have very positive impacts in our index weightings on the Santiago Stock Exchange and MSCI indexes. In fact, the local exchange will be the company with the highest weighting of a level near 10% and we expect that this should translate into improved visibility and liquidity of our stock. Please turn to the next Slide 17. Some key results this quarter were our ability to grow customer income by 9%, partially offsetting the negative impact of inflation during the quarter, which affected significantly non customer income.
We continued expanding our customer base by adding nearly 30,000 new current account clients each quarter and posting good loan growth, especially in the retail segment where SME loans grew almost 13% year on year and personal banking loans was up 10% year on year. Risk was above trend, but this was influenced by our growth in retail loans and temporary FX, which we expect to normalize and return to a range of around 1.1%. Our adjusted efficiency ratio reached levels of about 46.4%, in line with the level posted last year, and we expect that we should continue seeing improvements in the medium term as a result of some of the initiatives we mentioned earlier. Before moving on to questions, I want to highlight that we firmly believe in our long term customer centric strategy that is focused on providing the best customer experience in all the segments we serve by leveraging the use of technology to grow. We are confident that the positive economic scenario and solid capital and credit risk coverage levels together with competitive advantages should permit us to continue delivering good growth in loans and present cross selling opportunities that should drive customer income in the coming quarters and bottom line.
Thank you for listening. And if you have any questions, we'd be happy to answer them.
Our first question comes from Jason Mollin with Scotiabank. Please go ahead.
Hello. Thank you. Hi, everyone. My first question is on the outlook for full year 2019 that you gave a lot of details about the optimistic outlook for the rest of the year. You mentioned after the Q4 results that you were looking for ROE in the 18% to 20% range.
And given the weakness in the Q1, I just wanted to make sure that you're on target to make up, I guess, for a weak quarter throughout the rest of the year. And my second question is more specific on the loan sales, the sale of consumer loans, I think we had almost CHF 500,000,000,000 and about CHF 600,000,000,000 in the SME segment. If you can talk about the strategic view there and how that impacts the bank, I think we also saw some sales in mortgage loans. How do you guys manage that? How should we think about that?
And how does that impact the balance sheet and income statement? And should we expect that going forward? Thank you.
Hi. Yes, we're still confident that we'll be in a range, as we mentioned in the Q4 of a level of ROE that's between 18% 20%. Some of the critical projects that we've been developing and improvement in terms of business intelligence should continue allowing us to drive customer income growth throughout the year. And we should see improvements in our efficiency ratios in line with the higher inflation that's expected for the remainder of the year. So in the Q1, we had maybe a little bit we had a lower level of NIM, close to well, slightly below 4%.
We expect that should recover to levels of around 4.4%, in line with the expectations that Rodrigo said about inflation that we're expecting about 2.7% for the rest of the year. And in terms of also loan growth, I think it's important to mention that we should be seeing a level that's in line or slightly above the level that we're expecting for the industry, 10%, 11%, and that should also help us drive the bottom line. And finally, I would say fees is also growing at positive levels. We're expecting that we should continue in levels of low double digit growth in fees, which the main driver there is customer new customer growth. In terms of what we're doing in consumer loans, originations and sales, one of the key drivers for that area is the risk intelligence.
Everything we've been doing intelligence has been allowing us to grow strongly in that area where last year we implemented a new pre approved loan book, which is one of the main drivers for growth in that area, but we've also developed other initiatives in order to drive growth, such as personalized pricing models, our customer database that we can bring in new customers and we're actually one of the banks that's the fastest growing banks in terms of new customers into our bank. So by having that, we can also cross sell those customers into new products and services and that includes consumer loans. And our focus for the future, one of our key drivers or key areas that we're looking to grow is particularly in middle and upper income individuals in consumer loans and also SME loans. So in SMEs, we've also launched earlier this year in January a pre approved loan book as well. And that's also helping to drive SME loan origination.
And we think those two key areas should also help our bottom line throughout the rest of the year.
I would like to reinforce the idea related to the role of the macroeconomic drivers. So it's very important to keep in mind that in the Q1 the inflation rate was only 0.1%, while for the remaining quarters of this year, we expect inflation to be between 0.6%, 0.7% per quarter, which will be positive for income for the banking sector. And it's important to keep in mind as well that the economic growth in the Q1 was only 1.8% in a context where we expect the GDP this year will grow nearly 3.2% 3.3%. So not worse. We think that the Q1 was the weakest part of this economic cycle.
That's helpful. Maybe a little more color on the decisions to sell loans and how that works? Are these loans performing? Are they non performing? How should we think about the impact of that on the balance sheet?
Does that impact the NPLs? And are you also are you buying loans as well or are you just on the sell side?
Maybe there's a confusion when we're talking about origination. We're not actually selling the loan book.
You're talking about loan originations, not sales. That's what you're saying.
Right, right. It's just the growth. So the main driver of the growth of originations, Sometimes it's maybe it's confused with the word sales. We're always talking about originations. Generally, we don't sell any loan portfolio.
So
That's the growth.
Okay. So that's a growth you're not selling loans. That's a growth origination number that 5% to 6%.
Exactly. So generally, it's not a focus for us to sell our loan portfolio. That's what I was confused. Yes.
Okay. That's origination. And then amortizations, the net of that is what gives us the final loan balance.
Right. Amortization, prepayment, right. Got it. Thank you. That's helpful.
You're welcome.
Our next question comes from Tiago Binsfield with Itau BBA. Please go ahead.
Hi, guys. Actually, it's Thiago Batiste speaking. I have two questions. One about provisions. In the press release, you mentioned about the impact of retail company that entered system, sorry.
Can you guys quantify the amount of provisions that this event caused? I'm trying to normalize, at Finesse, the level of provisions of the bank in this queue. My second question is about SM Chile. Do you already know when the SM Chile holding company will is expected to be liquidated?
Okay. So for your first question, if you look at the key changes in our loan loss provision ratio, our cost of risk story, half of the increase of the cost of risk was due to volume and mix and leather is presented on Slide 15 as deterioration. Of that almost R10 1,000,000,000, 20% of that rise more or less is due to the incorporation of these 2 credit cards, which gave us more information about customers and affected the provisioning models. And in terms of your second question, regarding when SM Chile will be delisted and when this will all occur. Right now, we're waiting on a response from the superintendency.
Once they give the approval, we'll be able to initiate the process of liquidating these 2 companies. And during this month, we're expecting hopefully this month, we're expecting to have more information and hopefully distribute the shares to the San Chile shareholders of Banco de Chile. So we're expecting this change to occur during this month, if not the latest, next month.
Our next question comes from Emilio Azevedo with Santander. Please go ahead.
Hi, everyone. I have two questions. The first question is about opportunity growth on microfinance business. Specifically, I would like to know if do you see opportunities to grow on that segment considering the higher level of digitalization that is happening in Chile. Do you have any specific estimate for that growth?
And the second question is about acquiring business. I would like to know if do you expect to continue working with Trans Ban or maybe to compete on this business?
Well, our main focus in Banco Beach Chile is the middle and upper income individuals and SMEs. The lower income segment banking today represents very little of our total loan portfolio, less than 3%. So it's an area that we see that's attractive to grow in, but it really depends on the service model and how we've been implementing changes in the service model in order to incorporate more the digital transformation of Banco de Chile. So it's an area that has some opportunity to grow, but it's not the main driver for the bottom line of Banco de Chile. In terms of TransBank, Rodrigo will answer that first.
Okay.
So maybe you know in Chile, we have had a system that has been based on 3 parts. The main difference is that in most parts of the most countries in the world, they have a system based on 4 parts. So now in Chile, there is a transition moving from the current system, which is based on 3 parts towards the 4 parts. The Finance Minister announced a process a couple of weeks ago where there will be different parts of the system, Central Bank, the Panamini, TransBank, different banks, which are their work together in terms of having the best transitions over the long term. I think it's very important to wait for the final results of this process in terms of the timeline, the main challenges, the new equilibrium that we would have in the market.
And after that, we will we can define what will be our strategy for the long term. So in other words, we don't have important announcement on that front. But again, it's very important to wait for the final results for this transition, which is led by the sign administrator now.
Okay. Thank you very much.
Our next question comes from Ernesto Gabilondo. Please go ahead.
Hi, good morning and thanks for the opportunity. A couple of questions from my side. The first one is a follow-up in your ROE guidance. I believe it's very ample, the guidance range. So even with the rebound on inflation, don't you think the ROE will be more in the 18% this year?
And how do you see your expectations for net income grow this year? I know that you don't give guidance on the bottom line, but any color in terms of no growth, single digit growth, any color will be much appreciated. And then on my second question is on competition. As you have mentioned in wholesale loans, you experienced less dynamic growth. So maybe that's related to competition.
So I would like to know who are the most aggressive competitors that you're seeing And what has been the strategy to differentiate from them? Thank you.
Well, maybe I can give you some more information in terms of our overall guidance. In terms of ROE for this year like we mentioned, well in a medium long term it should hover in the range between 18% 20% with a target of 19%. But I think it's important that we can maybe go through a few of the other guidance. So for NIM, we're expecting to return to levels of around 4.4% in line with the higher inflation and a change of mix in the overall loan book, which is focused in the middle upper income consumer loans and SMEs. In terms of credit quality ratios, we should see an improvement in the next quarters to return to levels for the full year in line with our guidance, which was around the 1.1% level.
In efficiency, we should also see improvements in efficiency where levels should hover in the range closer to 44% with the better inflation figures and the implementation of new models, which in the medium term we should see a significant improvement of efficiency. In terms of competition, I would say that all the Chilean bank industry has historically been very competitive and we've seen in every segment that we serve there's high competition, especially in the retail segment and also in the wholesale segment. In terms of any particular reasons behind slower loan growth in the wholesale. Obviously, we're always looking to grow profitably and responsibly. So in the case of this, we're not willing to grow in order to reduce our spread.
So I would say for the remainder of the year, we should be in line with the industry and the intention is to be actually gain market share in the retail, especially in the retail loan book and something if pricing permits in the wholesale loan book.
Perfect. So just to clarify on your guidance. So I agree with you that in the next quarters, we should see higher NII, higher fees, lower OpEx and improvement in efficiency, improvement in the cost of risk. But that should be in the next three quarters. For the full year after the Q1, you are not seeing any impact on your expectations for the full year?
We think that the full year guidance should be in the levels that I just mentioned. So we're seeing a recovery. We expect a positive recovery in the next quarters already as you can see in the level of inflation in March, which affects April's numbers, there's higher inflation of 0.6 percent on average. So we should have the banking industry in general should post attractive levels of NII in that month, and we're expecting that the rest of the year should be positive in that sense. And customer income growth, as you saw in the presentation, was almost offset or net almost completely offset the lower income generation from inflation this Q1.
So really as long as inflation returns to Rodrigo's expectations, we think that we should be in those levels.
Okay, perfect. Thank you very much.
You're welcome.
At this time, there are no further questions. And this concludes the question and answer session. I would like to turn the floor back to Banco De Chile for any closing remarks.
Thank you for listening to our call and we look forward to talk to you for our next quarter financial results.
Thank you. This concludes today's presentation and you may now disconnect. Have a nice day.