Ladies and gentlemen, thank you for standing b y, and welco me to the Banco Itaú Chile second quarter 2025 financial results conference call. This presentation and the second quarter 2025 earnings release are available on our investor relations website. During the co mpany's presentation, all microphones will be disabled. Later, we will begin the Q&A session. To ask questions on audio, click on Raise Hand and state your name and company. You will then receive a request to activate your microphone. Please activate your microphone to ask the questions. To ask questions in writing, just queue the question in the Q&A button. Please be aware that your company's name should be visible for your question to be taken. I would now like to turn the conference over to Matias Valenzuela, Head of Planning and Corporate Strategy.
Good morning, everyone, and thank you for joining our second quarter 2025 conference call. My name is Matias Valenzuela, Head of Planning and Corporate Strategy at Itaú Chile. I'm here today with our CEO, André Gailey, our CFO, Emiliano Muratore, and our Chief Economist, Andrés Pérez. We are pleased to present our results for the second quarter of 2025. Before we begin, I would like to remind you that this presentation may include forward-looking statements. Actual results may differ materially from those discussed. I would also like to draw your attention to the financial information presented in the management discussion and analysis, which is based on our managerial model. This model adjusts for non-recurring events and applies internal criteria to present our income statement in a way that reflects how we manage the business.
Since the second quarter of 2019, we have been presenting our income statement in the same format we use internally. This approach allow us to analyze and discuss our performance across four key dimensions, commercial performance, financial risk management, credit risk management, and cost efficiency. We believe this model offers a clearer and more consistent view of our financial performance. For more details, please refer to pages 15-16 of our MDA report. With that, I will now turn it over to our CEO, André Gailey, to continue the presentation. Good morning, André.
Hi, everyone. Good morning, and thank you for joining us today. Let me begin by highlighting the key achievements and developments for this quarter. First, we are proud to share that for the fourth consecutive year, we have been recognized as the most recommended bank by our clients in the retail segment, according to ServiTest by Ipsos. This recognition, confirming our leadership in customer satisfaction, is a clear validation of our long-standing commitment to putting the customers at the center of everything we do. It reflects the trust we have built with customers we serve. Second, we highlight our continuous focus on capital discipline, risk management, and solid solvency levels. Over the past year, we ranked first among peers in capital generation, closing the quarter with a C ET1 capital ratio of 12%. This strong capital base enhances our flexibility to pursue strategic growth while maintaining a prudent risk profile.
Third, on the credit front, loan growth in Chile remained slow during the first half of the year, in line with softer economic activity and lower demand across segments. While market dynamics remain challenging, we anticipate a more active second half and growth for 2025 in line with the market. Fourth, we continue to diversify our revenue base. Growth in commissions and fees remains healthy, supported by increased client activity in areas such as asset management and financial advisory. This trend aligns with our broader strategy to strengthen client relationships and deepen engage ment across high-value services. Turning to culture and people. We are especially proud to have reached our highest ever employee Net Promoter Score. This reflects the strong engagement, motivation, and alignment of our teams.
We have been recognized as one of the best places to work for LGBTI+ talent, a recognition that underscores our ongoing commitment to inclusion and a purpose-led culture. In Colombia, we are executing our transformation plan with discipline. This quarter, we made meaningful progress in streamlining retail operations and reallocating capital towards the corporate segment, laying the groundwork for a more efficient focus business. During this quarter, we have recognized costs associated with this transformation. With that, we'll now hand over to Andrés Pérez, who will walk us through macroeconomic outlook for Chile and Colombia. Good morning, Andrés.
Good morning, André. Good morning, everyone. In this slide, I will provide a quick overview of the economic scenario in Chile. During the second quarter of 2025, the external macro environment became considerably more volatile and uncertain, partly due to shifting announcements regarding U.S. trade policy and their implications, as well as an escalation of military conflicts in the Middle East. Domestically, economic activity was somewhat more dynamic than expected, albeit with important swings in mining, which tends to be quite volatile at a monthly frequency. According to the monthly GDP proxy, activity rose by 2.9% year-on-year in the second quarter of 2025, up from 2.3% in the previous quarter. In contrast to better than expected activity, however, the labor market continues to display some slack. Likely due to rising labor costs in recent years.
On the nominal side, headline inflation fell to 4.1% in June, the lowest print since September 2024, yet still above the 3% target. In this context, the Central Bank of Chile maintained the policy rate at 5% in the quarter through June, yet signaled cuts later in the year. We will comment on the industry's loans growth further in this presentation. Regarding funding, demand deposits grew by 3.9%, with an annual rise of 2.8% in deposits from individuals, complemented by a 2.9% expansion in corporate demand deposits. Meanwhile, time deposits expanded by 3.3% over the past year, likely responding to changes in rates. In addition to the variation in deposit levels, mutual fund investments continued their growth trend, rising to 22.9% year-on-year.
This trend reflects an increased appetite for higher yield alternatives amid declining deposit interest rates. On the next slide, we show our forecast for this year and next for the Chilean economy. Factors that led to a strong start to activity this year are expectedly fading, even though mining production continues to outperform, leading us to maintain our 2025 GDP call at 2.6%. For context, Chile's potential GDP is estimated roughly at 2%. We expect a moderation of economic activity in the second half of the year. The fiscal deficit is projected to narrow further, primarily due to a revenue recovery already taking place. Persistent labor market slack could be a headwind to private consumption in the coming quarters. However, the recovery of mining-related investment may spill over to other sectors and support growth.
On the external front, even though tariff-related uncertainty has been high, practically all of Chilean copper exports to the U.S. have been exempt from the 50% tariff, and other exports maintain the minimum 10% tariff for now. We forecast inflation ending the year at 3.8%, with an important decline in annual prints during the second half of the year, driven by base effects. Importantly, inflation expectations at the policy horizon remain anchored at the 3% target. The Central Bank delivered a unanimous 25 basis points cut in July as expected, and we forecast another two cuts by year-end to end the year at 4.25%. For context, the BCCH, the Central Bank of Chile, estimates the center of the nominal neutral rate at 4%. Now for a quick overview of Colombia's recent economic performance.
Economic activity began the second quarter of 2025 with strong momentum, primarily driven by an outperformance of consumption on the demand side. The unemployment rate has declined towards 9% on a seasonally adjusted basis below the central bank's natural rate estimate. GDP growth is expected to range between 2% and 2.5% during the second quarter of 2025. On a marginal basis, inflation accumulated during the quarter is estimated at 5.6%, that is seasonally adjusted and annualized, compared to 5.2% in the first quarter of 2025. Core inflation remains elevated at 5.4%, up from 5.2% in the first quarter of 2025 due to persistent inflation in services following significant increases in the minimum wage.
In this context, the Banco de la República cut the monetary policy rate by 25 basis points in May to 9.25% in a unanimous decision. Now, in the next slide for our econ omic outlook for Colombia, activity started the second quarter of 2025 on a strong foot, leading us to maintain our 2025 GDP growth forecast at 2.5%, with risks tilted towards higher growth. The economy is projected to expand at a similar pace in 2026. While inflation surprised to the downside slightly for the second month in June, we retained our year-end inflation call at 5.1% and for 2026 at 3.6%. The disinflationary process this year is expected to slow in the second half of the year due to base effects.
Our forecast considers the Banco de la República taking the policy rate by year-end to 8.75%, while we continue to anticipate a year-end 2026 rate of 7.75%. Now, Emiliano Muratore, our CFO, will continue the presentation. Good morning, Emiliano.
Thank you, Andrés, and good morning, everyone. Before I begin, I'd like to let you know that my voice in this presentation has been generated using artificial intelligence. We believe this not only improves clarity, but also offers a small tangible example of how we're thoughtfully integrating AI across various areas of our bank, driving innovation and efficiency. Let me now turn to the key developments in client satisfaction, culture, talent, and sustainability during the first half of 2025. As André mentioned earlier, we are proud to have been recognized for the fourth consecutive year as the most recommended bank by our retail clients, according to ServiTest by Ipsos. This achievement reflects the impact of our unwavering focus on client service and experience, which remains at the core of our strategy.
We are consistently earning the trust of our customers and reinforcing our position as the bank that puts them first. Another fundamental pillar of our strategy is our people and culture. This year, we achieved the highest level of employee satisfaction in our history since we began measuring engagement. This milestone is the result of sustained efforts to build a strong purpose-driven culture throughout the organization. We were also honored to be named one of the best places to work for LGBTI+ talent, a recognition that underscores our values of diversity, equity, and inclusion, and our commitment to creating a workplace where every identity is respected and empowered. In addition, during the quarter, we successfully concluded negotiations with three of our five unions, entering into new collective bargaining agreements valid for the next 36 months as of July.
This outcome reflects our constructive dialogue with employee representatives and our shared commitment to long-term collaboration. On the sustainability front, we launched our new sustainable finance framework, which defines four social and six green eligible categories. This framework supports our broader climate transition strategy and reinforces our pledge to reach net zero emissions by 2050. In this line, our framework received a second-party opinion from S&P, which reported no identified weaknesses, a strong endorsement of its quality and integrity. Finally, in line with our social impact commitments, we continued to advance in financial education and inclusive talent development. In the first half of 2025, we opened three new finance labs at Chilean universities, bringing our total to five labs across the country. These labs are designed to support financial literacy, to increase the participation of women in STEM, and to foster broader talent development in critical areas.
Let's now turn to our financial advisory and deal activity for the second quarter of 2025, where we continue to see strong momentum across M&A, corporate finance, and debt capital markets. We're proud to report that we ranked number 1 in local DCM transactions by total volume and number two in M&A advisory in Chile during the first half of the year. These results are clear evidence of the trust placed in us by our clients and the strength of our corporate and investment banking franchise. This quarter, we continued to successfully advise and structure corporate financing transactions across Chile, Brazil, and Peru, once again demonstrating the value of being part of the Itaú Unibanco group. Our ability to leverage the group's regional reach and global platform enables us to originate and execute cross-border deals with scale and efficiency.
These transactions reflect not only our broad sector expertise, but also our proven capacity to mobilize capital across markets, supporting our clients' most strategic initiatives. Turning now to some of our key financial highlights for the quarter in Chile. We're pleased to report a continued stable trend in our financial margin with clients, which reached 3.7%, up from 3.4% in the same quarter last year. This improvement was achieved while maintaining a cost of credit rate of 1.1%, well within our expected range. As a result, our net financial margin with clients rose to 2.6% by the end of the second quarter, extending the solid trajectory we've seen in previous quarters and confirming the resilience of our core earnings. On the capital front, we further strengthened our position.
Our CET1 capital ratio rose to 12%, representing a buffer of approximately 370 basis points above the regulatory minimum of 8.3%. This buffer is not only significant, but also well above our peers' median, reflecting our commitment to disciplined capital management and a prudent risk approach. With this result, we are positioned as the top-ranked bank among peers in capital generation over the last 12 months. Regarding profitability, return on tangible equity normalized to 13% this quarter as anticipated. This evolution reflects the expected post FCIC adjustment and is fully aligned with our forward guidance. This quarter's results confirm our ability to sustain healthy and predictable margins, to strengthen our capital buffers, and to deliver consistent, solid profitability, all while operating within a stable risk and cost environment. Now, let's turn to the next slide to have an overview of our loans.
By the end of the second quarter of 2025, total loans in the Chilean banking industry grew by 3.9% year-over-year in nominal terms. This growth was mainly driven by mortgage lending, which grew by 5.6%, and consumer lending with a growth of 6%. In contrast, commercial loans grew only 2.2%, reflecting weaker business investment and a cautious stance on corporate financing across the sector. From a portfolio composition perspective, mortgage loans have maintained solid traction, supported by more stable financial conditions. Consumer credit has also rebounded in recent months, thanks to lower interest rates and a gradual recovery in employment. Meanwhile, commercial credit continues to lag, consistent with the current stage of the economic cycle. Let's now look at Itaú Chile's performance in this context. Over the 12 months, total loan growth stood at 0.4%.
Breaking this down by segment, we can see that our mortgage portfolio has been the primary loan growth driver with 7.4% year-over-year growth, well above industry's 5.6%. In this line, we would like to point out that we are participating in the FOGAES program launched by the government in May, aimed at fostering the housing market in Chile by providing incentives for customers to have access to a mortgage loan. This program, which covers 60% of property values and interest rate subsidies of up to 60 basis points, is expected to stimulate growth in the mortgage portfolio. We are well-positioned to benefit from it, not only in mortgage lending, but also through positive spillover effects on our corporate loan book, particularly with real estate developers. In terms of our consumer loan portfolio, we saw a contraction of 0.5%.
This contraction reflects our deliberate strategy of achieving an enhanced risk control and focusing on portfolio selectivity. As discussed in our first quarter results, we prioritize growing in new money and controlling growth of refinanced and renegotiated loans. This strategy is already yielding results. We recorded the largest reduction in renegotiated loan market share among our peers by the end of the quarter, demonstrating a measurable improvement in our risk profile. Now, regarding our commercial portfolio, lending declined 3.1% year-over-year. This movement was driven by subdued demand, selective origination, and cautious investment behavior across the business sector. We continue to focus on quality over volume in this segment. Quarter-over-quarter, Itaú Chile's total loans grew by 0.6% in line with the industry.
Our mortgage loans grew 1.6%, slightly ahead of the industry's 1.1%, while commercial loans rose 0.4%, which was broadly in line with the market. In turn, consumer loans declined 1.3% versus 1% growth in the industry. Again, reflecting our continued focus on disciplined risk management. While overall loan growth remains modest, our results demonstrate consistency in our strategy of capitalizing on targeted opportunities in mortgage lending, proactively managing risk in consumer lending, and maintaining discipline in commercial lending. In all cases, aligning growth with our risk appetite, pricing discipline, and forward-looking view of market conditions. Moving on to funding and assets under management. In the second quarter, demand deposits continued to show strong performance aligned with our strategy of deepening the relationship with our clients.
Itaú Chile posted 12-month growth of 7.3%, significantly outpacing the banking industry average of 3.9% and the peer group average of just 2.3%. In terms of composition of the portfolio, demand deposits of individuals grew by 4.5%, above the industry's 2.8% growth. Companies' demand deposits showed even stronger momentum, increasing by 6.5%, while the industry grew by 2.9% in this segment. This positions us among the top two banks in terms of year-over-year demand deposit growth, with an increase of 19 basis points of market share in demand deposits over the last 12 months, resulting in a 6% share at the end of the quarter.
In terms of time deposits, we recorded a 12.4% decline over 12 months versus an industry growth of 3.3%. This decline primarily reflects the reduction in customer appetite amid falling interest rates, a trend seen across the system. Turning to assets under management, we delivered a 26.2% increase year-over-year, outperforming the industry's 22.9% growth. This momentum helped us expand our market share in AUM to 5.6%, an improvement of 15 basis points over the last 12 months. These results show that our strategy to build deeper relationships and offer top-tier financial products to our clients is paying off.
Lastly, in terms of funding costs, as shown in the bottom right panel of the slide, our primary issuance of local bond spreads tightened meaningfully in the second quarter, in line with AA A-rated peers, down from an average of 7.9 basis points since 2024. This significant improvement is directly tied to the credit rating actions taken earlier this year, including an upgrade to AA A by Feller Rate and a positive outlook assigned by ICR. Together, these upgrades have lowered our funding costs and enhanced efficiency in our access to capital markets, strengthening our ability to fund growth in a more cost-efficient and competitive way. The next slide summarizes our key consolidated indicators for the quarter.
Our consolidated financial margin with clients stood at CLP 332.3 billion, and our net interest margin reached 3.4%, reflecting continued resilience in our core banking activity. Commissions and fees totaled CLP 56.9 billion, supported by stable client activity and a diversified service offering. The cost of credit was CLP 82.6 billion, remaining within our expected range and aligned with our disciplined risk management approach. Finally, our consolidated recurring net income reached CLP 98.8 billion, translating into a return on tangible equity of 11.1% for the quarter. These results reflect the solid fundamentals of our business, anchored in stable margins, strong credit quality, and disciplined capital allocation.
Moving on to the next slide, our financial margin with clients continued its positive trajectory, increasing by 1.1% quarter-over-quarter and 1.3% year-over-year, and reaching a rate of 3.7%, which represents a 27 basis points improvement compared to the same period last year. This quarter's performance was primarily driven by active management of our impaired loan portfolio and stable levels of credit spreads. However, this increase was partially offset by softer growth in commercial lending in the quarter and lower client activity in FX and derivatives. On a year-over-year basis, the improvement in the financial margin with clients is mostly explained by a positive trend in spreads, which was partly tempered by slower growth in loans.
On the next slide, we take a closer look at our financial margin with the market, which posted a decline of 81% quarter-over-quarter and 96% year-over-year in the second quarter. This decline was primarily driven by negative trading results, reflecting increased market volatility and lower commercial activity. Over the past few months, we've enhanced the structure of our trading division, incorporating new talent to reinforce capabilities and promote greater stability and performance. This is aligned with our broader strategy to build a client-centric treasury platform designed to improve the quality and consistency of solutions delivered to our clients. Turning to ALM in June, Itaú executed its first-ever bond repurchase, a strategic move aimed at improving our structural liquidity position, diversifying future maturities, and also generating a positive impact on results for the quarter.
From a year-over-year perspective, it's also worth noting that results for the second quarter of 2024 still included a positive impact from the FCIC program, which created a high comparison base. Lastly, I'd highlight our limited exposure to inflation thanks to the close alignment between our funding and loan structures. This risk-matched balance sheet continues to shield our results from inflationary shocks and allows us to benefit from the tailwind of monetary policy rate reductions observed in recent quarters. In short, while market-related results were softer this quarter, we are taking decisive steps to improve performance, strengthen the team, and ensure long-term value creation in this line of business.
Turning to the next slide, we saw strong performance in commissions and fees, which increased by 16.9% quarter-over-quarter and 23.6% year-over-year. This growth reflects the commercial strategies we've implemented since last year, especially a sharpened focus on the credit card business and the strategy of expansion in transactional products. These efforts have strengthened our value proposition and helped broaden our recurring revenue base. We also saw increased contribution from structuring services, especially in financial advisory fees, which reflects both rising client activity and the evolution of our corporate and investment banking platform. As shown in the chart in the bottom right corner of the slide, there is a clear upward trend in the share of commissions within total operating revenues. This metric rose to 16% in the second quarter, up from 12.6% a year ago.
An important indicator of our business diversification and improved revenue quality. We also continue to benefit from positive momentum in fee income linked to asset management. This line is supported by our 26.2% year-over-year growth in assets under management, reinforcing the value of our advisory and investment platforms. In contrast, the performance of our insurance business remains under pressure, reflecting the continued effects of a slow economic recovery. In the following slide, we can see that our cost of credit increased by 12.8% quarter-over-quarter. This increase was mainly due to rating reclassifications applied to certain clients within the commercial portfolio and to the reversal of CVA provisions recorded in the first quarter of 2025, which created a higher base for comparison.
These impacts were partially offset by higher recoveries from written-off loans, supported by enhanced collection efforts, particularly important in the context of rising delinquency seen during the first half of last year. Despite the sequential increase, our cost of credit remains stable at 1.1%, fully within our annual guidance range. The solid performance year to date reflects lower delinquency across the portfolio, especially in the consumer segment, and positive outcomes from our ongoing management of renegotiated and refinanced loans, which have contributed to a healthier credit risk profile. Looking at non-performing loans, we saw an 11 basis point increase compared to the previous quarter. This was primarily driven by a 5.3% increase in the NPL portfolio within commercial loans, stemming from the defaults of certain specific transactions in the Itaú corporate portfolio.
Lastly, our coverage ratio stood at 136% in the second quarter, down 9 percentage points from the previous quarter, in line with the increase in commercial NPLs just mentioned. While we've seen isolated credit impacts in the corporate portfolio, overall credit quality remains well managed, supported by proactive risk controls and the improved structure of our consumer book. In the next slide, we present our non-interest expenses for the quarter, which increased slightly by 0.1% quarter-over-quarter and 5.0% year-over-year. On a quarterly basis, and with a high focus on cost control, we were able to maintain expenses effectively flat, with personnel expenses rising by 3.3% and administrative expenses declining by a similar margin, offsetting the increase and keeping overall expenses stable.
The year-over-year increase was primarily driven by salaries indexation to inflation, the recomposition of staffing levels, investments in commercial initiatives and IT expenses, along with other minor operational factors. Turning to efficiency, we ended the quarter with a ratio of 43.6%, which is a 0.8 percentage point improvement compared to the previous quarter and a 3.4 percentage point increase year-over-year. The increase in the yearly comparison is largely due to lower operational results as compared to last year's stronger base. Despite this, expense growth remains under control, tracking below inflation and aligned with our full year expectations. Our ongoing focus is on efficiency through disciplined cost management, even as we continue to invest in long-term capabilities that support client service and growth. Turning to slide 18, let's take a look at our operation in Colombia.
Starting with operating revenues, I'd like to highlight that the financial margin with the market posted a positive result this quarter for the first time since 2021. This improvement was driven by stronger trading performance, stable self-funding levels, and also a positive impact from lower monetary policy rates in the period. In terms of asset quality, the NPL ratio remained broadly stable compared to the previous quarter, with a slight decrease of 5 basis points. This stability reflects continued improvement in consumer loan delinquency and a solid performance in the commercial loan portfolio, which, despite a few isolated cases in Itaú corporate, benefited from new loan disbursements in recent months. On the cost side, non-interest expenses decreased by 3.6% quarter-over-quarter, mainly due to a reduction in personnel expenses following severance costs booked in the previous quarter.
This reduction was partially offset by an increase in administrative expenses, mainly related to marketing investments. As a result, our efficiency ratio improved to 68.3%, a 3.5 percentage point decrease versus the first quarter. This improvement reflects both lower expenses and a 3.3% increase in operating revenues. Finally, we reached a return on equity of 2.6% for the quarter, continuing the stable trend observed over the past 12 months. While profitability remains modest, we're seeing early signs of structural improvement, particularly in trading, funding efficiency, and cost control as we continue to execute on our transformation plan in Colombia. Moving on to the next slide, I'd like to share more detail on the transformation strategy we're executing in Colombia.
We are actively implementing a transformation plan focused on unlocking the full potential of our corporate segment, a business that is already profitable and well-positioned for growth. In parallel, we are reinforcing our focus on the affluent retail segment and de-escalating our presence in the non-affluent retail segment. This strategy has a clear goal: to make this segment more efficient, transitioning to a more digitalized offer and optimizing resource allocation. It's important to emphasize that this transformation plan will continue throughout the next months, so we are expecting to incur in non-recurring expenses in upcoming quarters. These will be disclosed transparently and in a timely manner, in line with our commitment to proactive market communication. Overall, this strategy is designed to sharpen our focus and build a leaner, more profitable business in Colombia over the medium term. Now let's move on to the next slide to discuss capital.
With a strong focus on capital ma nagement, financial discipline, and risk mitigation techniques, we have consolidated a highly competitive position in terms of capital adequacy. We now rank first among peers in capital generation, supported by a sustained improvement in solvency over recent years. As already mentioned in this presentation, we had a robust capital generation during the second quarter of the year. Our CET1 ratio increased 66 and 105 basis points quarter-over-quarter and year-over-year respectively, reaching 12%. In the same line, we maintain a significant buffer of around 370 basis points, far exceeding the regulatory minimum, allowing us to maintain a capital position that is well ahead of peers averages. In addition, our liquidity ratios also remained well above regulatory thresholds and continue to position us among the top performers in the industry.
Together, these indicators reflect our consistent approach to disciplined growth, strong balance sheet management, and long-term financial resilience. Moving on to the next slide, let's take a look at our updated view on 2025 guidance. Following a first semester marked by lower growth in terms of loans, largely reflecting softer credit demand and cautious market dynamics, we have revised our 2025 guidance to align with a market level growth. That said, we continue to anticipate a recovery in the second half, supported by improving macroeconomic conditions and targeted growth initiatives already in place. On the other hand, both our financial margin with clients and commissions and fees have performed above guidance in the first semester. This performance demonstrates solid client activity and strong execution of our commercial strategy.
Meanwhile, our cost of credit, non-interest expenses, and return on tangible equity remain on track with full year expectations in line with the trajectory we had projected. With that, we conclude the presentation that we have for you today. Thank you for your attention and continued trust in Itaú Chile. We will now gladly take any questions that you might have.
To ask questions on audio, click on Raise Hand and state your name and company. You will then receive a request to activate your microphone. Please activate your microphone to ask the questions. To ask questions in writing, just queue the question in the Q&A button. Please be aware that your company's name should be visible for your question to be taken. Our first question comes from Yuri Fernandes with JP Morgan. You can open your microphone.
Thank you all and good morning. I have a question regarding the Colombia transformation plan. We saw one plan happen in the past. I think there was already a major cut of branches since 2018. I would say between 2019 and 2023, there was a big drop in number of employees and branches. I remember, like, part of the speech was focusing higher income clients and the wholesale banking. I see, you know, the one-off this quarter. Like you mentioned that we could see further one-offs in the coming quarters. I just would like to understand, guys, what is different now? What were the lessons from the first, if I can call like the first transformation plan you had in Colombia?
What is the potential ROE, the tangible ROE we could see for Colombia? Because I think for Chile, usually, you discuss 15, 16, maybe 17 tangible ROE for Chile that is above the levels you have today. But I would like to understand the Colombia outlook once you have this transformation done. Then I can ask a second question. Thank you.
Hello, Yuri. Thank you for your question. Long-term ROTE for Colombia, it's a big question for everyone. As you have seen, I mean, we have five consecutive quarters in the positive territory in terms of ROTE. We believe that after the transform ation plan, that it will be mainly focused on corporate business. We can take the ROTE, let's say, closer to cost of equity at, let's say, around the 10% area. I mean, how close to cost of equity or how below 10% will depend basically on our execution capabilities of the plan. We already see the profitability in the corporate segment that you can also see that number in other peers that are focused on that segment that could be, let's say, in the high double-digit area.
That's kind of the ambition. What is different to the past? Basically, not much. I mean, we continue in this plan to make the Colombia operation leaner and more efficient and more profitable by trying to reduce the inefficiencies and the destroying value part of the business, trying to take it as small as possible by focusing on the part of the business where we can make money as corporate and also we can do a good business in the more affluent part in the retail segment.
No. Great. Thank you. If I may, just on margins, you don't have a lot of inflation exposure. It's hedged, right? If there is low inflation in Chile, no big deal for you, and you have this guidance of stable NIMs. Why not margins going up? You are trying to improve the funding. I see the company doing a lot of liability management on the bond sides, right? I see it's very common for us here on the sell side to see new issues on Itaú Chile. I think you are trying to do a good job on that, on the liability management.
Just checking the bottom margins, if stability, you know, is the base case and you are above, but eventually the margins will drop a little bit and be more stable year- over- year. Or if, you know, if we could see NIM expansion and maybe a better outlook for your margins. Thank you.
Yeah. There, I think we need to separate the financial margin with clients and with the market. For the clients part is where we see a more stable outlook that has been improving and we think that we can keep in that range. If you look at the financial margin with the market, the evolution there, you can see that we have an upside potential on the financial market with the market where that's where the liability management we are executing impact, and also where the reduction of the monetary policy rates will make an impact. As you said, in terms of inflation, we are hedged for the next, like, 12 months.
The slowdown in inflation that we are seeing and we expect won't affect our margin, and we will benefit from the central bank cutting rates in terms of total cost of funding. Trying to summarize, the financial margin with the clients should stay, like, stable and the overall NIM could have some upwards trend because of the benefits of the financial margin with the market.
Oh, great. Thank you very much.
Our next question comes from Daniel Mora with Credicorp Capital.
Hey, good morning, and thank you for the presentation. I have just a couple of questions. The first one is regarding loan growth. I would like to understand what is the loan growth strategy going forward, given the current performance of growing below the industry level, especially in the consumer and the commercial segments. When do you expect the loan portfolio to gain traction, and where do you anticipate to gain market share? That will be the first one. The second one, it's regarding Colombia. I would like to understand what are the competitive advantages that you have in Colombia that should allow the company to compete with established banks that are already focused also on affluent clients. Thank you so much.
Hi, Daniel. Thank you for your question. I mean, regarding loan growth, we think that we are in a kind of inflation point, because the corporate portfolio, which is the one that has been falling in the margin, even though the last quarter was flat, will, as you see on the monthly and the quarterly sequence, will start to grow. That's where we expect to close the year in positive territory, catching up with the evolution of the growth in the markets, with the backdrop of not much long-term investments and CapEx plan for companies, but with the working capital part and the trade business improving. That's the part of the portfolio that has been performing the worst.
When you go into mortgages, in that part, we have been gaining market share and we expect to keep that pace. The market is seeing a boost because of this F OGAES program the government launched, which is a very aggressive plan to boost especially the sale of new properties up to $160,000. It started in July, and we are seeing good demand there. That has definitely a tailwind for mortgages.
It's also good for cost of risk and for cost of credit for us because many of the developers that have large number of properties to sell now they will be available to dispose those assets and will help us to recover and to collect that exposure to the developer side. That's on that news on the FOGAES program is positive for both sides. I mean, the loan growth on mortgages and also cost of risk on the corporate segments. Then you have the consumer portfolio where what we call the new money portfolio, which is, let's say, new loans granted to people instead of refinance or restructure loans.
That part of the portfolio, it's growing, and it's growing in line with the market. The overall flattish number you see on the consumer, it's something kind of looked for from our side, and that's originating and creating the positive trend in cost of risk in the consumer segment. In that sense, the fall and the reduction of the refinanced and restructured loans in consumer will kind of stabilize, so we won't fall forever. I mean, we are reaching kind of the minimum level of that portfolio. The overall consumer portfolio will start to grow considering the new money growing and the other part kind of flattish.
I would like to point out in this point, Daniel, that we don't have an objective or a target to gain or to increase market share on the loan size. We don't want to lose, and that's why we want to keep pace with the market and with the competition. It's not, let's say, part of the strategy to grow significantly. We want to stay in the 9%-10% market share in terms of assets. We are working in customer satisfaction and technology development. All our focus from the commercial side is to gain primacy and more on the liability side, not just checking accounts, but also AUMs and investment from clients. We expect and we plan to keep pace with the market in terms of loans for the second half and onwards. Your second question about Colombia, can you repeat or would you want to? Can you repeat the question? I cannot-
Sure. The second question was where, what is the competitive advantage or competitive advantages that you have in Colombia to compete with established banks in the affluent segment?
Yeah. I think at first, our main objective and our main strategic target in Colombia is the corporate segment. That we already are doing well, and we do have a significant competitive advantage, that it's basically the regional footprint and being part of Itaú Unibanco. We are already seeing a lot of synergies and business opportunities from the clients having regional exposures, from cash management to capital market transactions. Consider that as Itaú, we have a significant presence in most of the South American countries where many of the companies operates, not just between Chile and Brazil, but also Uruguay, Colombia, Peru, and Argentina.
In the corporate segment, we have a good competitive advantage to local peers and with some international players that do not have a local operation. That's what explains our performance in the corporate segments already, and one of the reasons that make us be very constructive and optimistic about the performance in the corporate segments. As you said, in the affluent part, again, being part of Itaú is one of the main advantages we have. Itaú, as you know, it's a giant, and in Brazil it's doing significantly well in this new digital neobanks environment.
We do think that even though it's not something that we want to keep or expect to gain market share significantly, but we do think that our knowledge and reach of Itaú Unibanco capabilities, apart from the local knowledge we have here in Chile, where, let's say, the affluent part is our main core segment, where we perform the best. We do well, it's that kind of connections to the group that can give us an edge on performing in the affluent segment.
Okay. Thank you very much. Very clear.
Our next question comes from Andres Soto with Santander.
To all, thank you for the presentation and the opportunity to ask questions. My first question is regarding capital. You are outperforming most peers at 12% Common Equity Tier 1. I would like to understand where do you want to be. Do you expect additional capital accumulation? How much more than the required capital are you expecting to hold over the medium term? My second question is a follow-up on in terms of margins. On that one, you guys are clearly underperforming the market, not only at the consolidated level, but especially if we consider the Chilean operations standalone.
I understand the point of the recovery in the margin with the market, but regarding the margin with clients and your strategy to increase funding, do you see, do you have any medium-term target in terms of the margins that you could achieve, given this strategy? Thank you.
Hello, André. Thank you for your question. In terms of CET1 and capital, definitely that's one of the highlights of the quarter. We are above our target. The phased-in ratio, it's 12%, under fully loaded, that's 11.6%. Our target range is from 10.5%-11% in terms of the fully loaded C ET1. We have, let's say, 50-60 basis points above that. That's something that we reach because of the capital discipline we have within Itaú when originating and allocating capital. We are very disciplined, and we follow a strict return on risk-adjusted capital policy that allowed us to be profitable and at the same time be cautious on capital.
That discipline also applies for using or applying that excess of capital. I mean, even though going forward, there are some growth opportunities, as I mentioned before, the corporate portfolio will start to grow in the second half. That will demand some amount of capital. As we mentioned in previous calls, we do see some upside trend on payout on the dividend policy going forward because we expect the BAU profitability to be enough to cover the growth opportunity we foresee and so basically, we don't need to keep accumulating capital. I mean, remember that we come from well below 10% CET1 ratio. Now we are very comfortable, so we don't need to keep accumulating capital.
The idea is to be also disciplined in allocating and deploying that capital, either for growth opportunity or for shareholders' remuneration going forward. In terms of margins, the target for clients' margins is to stay in the high 3%. I mean, we are at 3.7%, and with our strategic plan to grow on priority and checking accounts and also transactionality with corporate clients, we should have some improvement on the cost of funds part. The high 3% is what we target for financial margin or NIMs with clients. The big tailwind we see going forward is the financial margin with the market, sorry.
Because as you even see in our recent performance on slide 14, I mean, we have had four weak quarters in that front, and we think we already see some of that in July, where the central bank cutting rates and also the possibilities to start deploying the liability management strategy. On top of also some revamp on the trading business and the derivative business with clients, where we are doing a shift in the way we managed the treasury business by trying to be more close to the client flows. I mean, to try to get more stability on the revenue generation from that business.
That's something that we executed during the first half with some restructuring and some hiring of new people from the market in that segment. Overall, that should take the financial margin with the market to, let's say, closer to CLP 15 a quarter. That is the target that we think that that'll help us. That will, compared to the last 12 months, will be also a good tailwind for the consolidated margin.
Perfect. That's very clear. Thank you, Emiliano.
Once again, if you would like to ask a question, please click on raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Please hold while we poll for questions. Our next question comes from Ewald Stark. You can open your microphone.
Good morning, everyone, and thanks for taking my question. I would want to know where do you expect return on tangible equity to be for the next year, but adjusting for income tax ex-tax expense that today the net income is being pushed upwards because of positive income tax expense, so you are achieving the 13%-15% return on tangible equity, partly due to that. I would like to know where do you see this year in the next year?
Hello, Ewald Stark. Thank you for your question. Our kind of short-term, when I say short-term, I mean 2025 and also 2026, ROTE range stays in the 13%-15% range. That's considering, as you said, that the first half of this year we had a very low effective tax rate. The second half will be a bit higher, and even though with that, we'll close the year in range of the ROTE we guided at the beginning of the year. Going forward, even though the effective tax rate should increase, we still foresee effective tax rate from 10%-15% for the next 12-18 months.
We'll still have a kind of constructive tax rate for the net income. Also going back again to financial margin with the market, that will be the tailwind that will compensate the rebound in the effective tax rate going forward, and that should allow us to stay in the 13%-15% ROTE. That's, as I said, the kind of short-term ROTE guidance. Our strategic plan for the next three to five years is to move that range 200 basis points upwards to the 15%-17% range. For the next 12-18 months, we expect to keep the range we are seeing now.
Okay, perfect. One last question. What milestones are you waiting for in terms of financial performance, to increase payout?
I think that there's no specific milestone. It's more of internal governance discussion to take place. I mean, you have the annual shareholder meeting once a year. You can have some extraordinary shareholder meeting. It's more on the kind of internal governance discussion that might take some time deciding the different alternatives we have for deploying capital. We are already in a territory where we are discussing those alternatives, and there is no specific milestone. I would say that we have already reached the milestone, and we are in the process of discussing the alternatives.
Okay, thanks. Have a good day.
Thank you. This concludes the question and answer section and today's presentation. Thank you. You may now disconnect and have a nice day.