Hello, and welcome to Banco Itaú Chile second quarter 2023 financial results conference call and webcast. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Claudia Labbé. Please go ahead.
Good morning. Thank you for joining our conference call for our second quarter 2023. I would like to remind you that our remarks may include forward-looking information, and our actual results could differ materially from what is discussed in this presentation. I would also like to draw your attention to the financial information included in this Management Discussion and Analysis presentation, which is based on our managerial model, in which we adjust for non-recurring events and apply managerial criteria to disclose our income statement. Please remind that since the second quarter 2019, we are presenting our income statement in the same manner as we do internally. This managerial financial model reflects how we measure, analyze, and discuss financial results by segregating commercial performance, financial risk management, credit risk management, and cost efficiency.
We believe this form of presenting our results will give you a clearer and better view of our performance from these different perspectives. Please refer to pages 12-14 of our report for further details. Now, Mr. Moura will continue with the presentation.
Thank you, Claudia. Good morning, everyone. Thank you for joining us for the second quarter 2023 conference call. As usual, we will update you on the progress that we are implementing in our strategy, as well as present the highlights of our second quarter results. We start on Slide two, where we recap a bit of our history as a bank, starting this post-merger integration, going through the period of social unrest in Chile, as well as the pandemic, and moving on to the transformation process that we started in late 2020. As a result of our transformation, we achieved industry leadership in customer recommendations while digitizing our relationship with customers. Given the progress we made in customer experience, we believe we are now well-positioned to pursue becoming the principal bank for most of our existing customers.
In Slide three is a reminder that we achieved the number one position in recommendations for both individuals and firms according to independent Servitax research. That is the base from which we are now aiming to become our customers' principal bank. On Slide four, we explain what we are doing to achieve primacy in our retail segments. The numbers in the middle of the page show why primacy is so important for profitability, as it results in high volume and income per customer, as well as a reduced churn. In order to achieve primacy, we are focused on products and services that are the biggest drivers of transactionality and customer stickiness.
Pursuing primacy requires installing a primacy mindset on our teams, creating new digital functionalities in our platform, addressing new customers from the start of the relationship with the bank, as well as focusing on clients with high propensity to become primary customers. Moving to Slide five. We are glad to share our alliance with Cardif have been operational since April, when we launched the first products in our channels. Protection is a key element of our what our customer needs for financial services, and good insurance products are highly valued by customers. It was very important for us to strengthen our value proposition in that space. That is why we made a big move by partnering with Cardif in an alliance with great potential in which we are just getting started. On Slide six, we present our strategy for primacy in the wholesale business.
A major element of that strategy is leveraging the Itaú franchise, which is the biggest financial services franchise in Latin America. We are increasing customer digitization through online FX transactions and time deposits, as well as moving into digital documentation for client onboarding and procurement. We are beginning to see the results, having been the fastest-growing bank in demand deposits for companies in 2023 as well as the bank that most expanded market share in FX since the start of the year. On Slide seven, we show how we are exploring the synergies between our wholesale and retail businesses. For example, in payrolls and mortgage financing. Our relationship with companies generates opportunities to offer payroll services for their employees, which is a good source of a sticky relationship with individuals.
Our presence in financing of construction projects, which focus mostly on housing or real estate, also creates opportunities to offer mortgages to the buyers of those housing units. These efforts are good examples of how Itaú corporate culture, which one of the pillars is working together as a single Itaú team, have been very effective at connecting different teams in pursuing opportunities together. Moving to Slide eight, we announced that as part of our strategy to offer simple and digital products, we will launch our digital account, itu, over the next few months. We have taken some time to develop an account with distinctive features, and we'll give you more details as it comes in due course.
It is also worth noting that our digital account has been developed with a new IT platform that will be used with other products, giving us plenty opportunity to gain speed and efficiency with bringing new products to the market. Let's move to Slide nine. As part of our broad offering of financial services and in line with our key pillar of sustainable results, we became a joint bookrunner for the Republic of Chile's first sovereign sustainability-linked bond in local currency. This bond will promote the reduction of greenhouse gases as well as promote gender equality in high-level positions. We are expecting to deepen our experience in those specialized services to become the number one provider on sustainable finance for our customers. Now, moving forward to Slide 10, where we present the financial highlights of our second quarter of 2023.
Our consolidated net income reached CLP 147.9 billion, increasing 1.8% year-over-year. Net income in Chile was basically flat at 51.5 billion Chilean pesos, which is a high level for us. Consolidated net return on tangible equity was 20.4%, while return on tangible equity in Chile reached 24% in this quarter. Consolidated financial margins with clients grew 15.8%, boosted by high volume as well as high interest rates in both Chile and Colombia, which positively impacted financial margins on liabilities and capital. Consolidated fee income grew by 103.8%, of course, positively impacted by the upfront income related to the alliance with Cardif in Chile.
Consolidated non-interest expenses decreased by 1.4% year-over-year as a result of the lower inflation observed during this year, in addition to the progress of the efficiency plan implemented in Colombia. The consolidated efficiency ratio for the second quarter was 41.6%. Consolidated cost of credit decreased by 5.2% over the high base we recorded in the second quarter of 2022, which was negatively impacted by the worsening economic conditions at the time. When you look at our credit portfolio, it grew 8.7% in Chile and -1.5% in Colombia in constant currency compared to June 2022, with consumer and mortgage loans in Chile as the big contributors for that growth. Overall, we delivered strong results at some of the most challenging points of the economic cycle.
Even if we take out the effect of the upfront insurance income, return on tangible equity would be close to 17% in Chile and just above 14% consolidated, which is in line with our long-term goal. We now move to Slide 11, where we show that our financial margin with clients in Chile increased by 3.1% during the quarter and 16.9% over the previous year. The increase compared to the first quarter is primarily driven by high margin of commercial spreads on derivatives and FX transactions and high capital margin. The graph on the right-hand side demonstrates that our average rate of financial margin with clients was stable last quarter.
As we mentioned in our guidance, we do not expect that rate to be strongly negatively impacted by as interest rates begin to fall as a result of the change in the mix of our assets toward retail, as well as improving the spreads on some business lines. On Slide 12, we can see that in the second quarter of 2023, our financial margins with the market was CLP 16.2 billion Chilean pesos, which is a 31% increase over the first quarter, which is a very low base. As we mentioned before, our financial margins with market is currently under pressure due to falling inflation.
Having said that, we managed our balance sheet sensitivity down with inflation, so our financial margin with the market should not be impacted by lower inflation expected towards the end of the year. On Slide 13, our attention is on fees, which grew 140.6% this quarter, positively impacted by the upfront income related to our insurance alliance. The other fee lines grew mid-single digits year-over-year, except on financial advisors, or financial advisory fees, which decreased. Clearly, the most important news this quarter has been the start of operations of our alliance with Cardif, which we expect to be a major driver of fee growth going forward. Here on Slide 14, we observe our main credit risk indicators in Chile.
In the second quarter, the cost of credit was CLP 57.4 billion, which includes 8.1 billion Chilean pesos in additional provisions established during this period. NPLs were down 21 basis points, and NPL coverage was up 172%, while the ratio of the cost of credit to average credit portfolio was 1%. For the first half, that ratio was 1.2%, including the additional provisions. Well within our guidance of 1.1%-1.5% for 2023. These are good news at the margin, but we remain vigilant in the management of this latter part of the credit and interest rate cycle. On Slide 15, we highlight our success in expanding our consumer credit portfolio much faster than the market. 48.5% versus 18% over the last five years.
With credit risk very much under control as well as consumer NPL ratio in the third lowest of the industry. This performance has been one of the major drivers of improvement of our returns over the last two and a half years. Here on Slide 16, we show non-interest expenses over the quarter, which increased 6.3% compared to the last quarter and 8.9% year-over-year. The efficiency ratio in the second quarter was an all-time best of 36.9%. The graph on the right-hand side of the page shows that the headcount has fallen by 612, which is 11% since 2019. This 11 percentage point improvement of our efficiency ratio has been driven both by the increasing revenues and costs growing below inflation, which have been one of the trademarks of our management model.
Let's move to Slide 17 on Colombia, where we continue to see results that are slightly above breakeven in a challenging scenario, in which some important banks have suffered losses this semester. We continue to implement our transformation plan while navigating through difficult waters. Progress is again visible mostly on the efficiency side, where we continue to adjust the structure to a more focused strategy. On the next page, Slide 18, we once again show that we are among the best capitalized and most liquid banks in Chile. The improvement of our financial strength over the last 2.5 years, both organically and through the $1 billion follow-on stock offering, demonstrates our commitment to resilience and prudent management, which is the essence of the Itaú management model.
More importantly, on Slide 19, I think that we can recap the key messages that we have for you on this presentation. First, we have strong results and a positive operational trend in a challenging environment, having 20.4% consolidated return on tangible equity this quarter. Even when we exclude the impact of the Cardif alliance, our return on tangible equity was around 17% in Chile and 14% on a consolidated basis. We continue to advance our strategic agenda, where we are now focused on building on our customer satisfaction to achieve primacy. It is worth noting that this is a low-risk strategy at this moment of the cycle, as we are mostly focused on existing clients in transactional products as opposed to lending.
The third point is that our partnership with Cardif is now operational, which is a big boost to our value proposition to customers in attractive line of business from a shareholder value creation perspective. Finally, we continue to prudently manage the credit, capital, and liquidity risks, which is the Itaú way. With that, we conclude the presentation that we have for you today, and we will gladly take any questions that you might have.
Thank you. If you do have a question, please press star one on your telephone keypad. Your first question comes from the line of Yuri with JP Morgan. Please go ahead.
Hi, Gabriel. Thank you and congrats on the 17 ROE. I have a question regarding your fees. I guess you had Cardif benefit this quarter on the insurance broker. I just wanna check, like, if we should see any more benefits from this contract, if this was kind of a one-time and now, you know, fees should be running at a more normal level. So just checking this on fees. On cost of risk, you mentioned in the call that things are doing better and we agree here. We are seeing the new NPL formation doing fine, NPLs coming down, like, charged-off were not super high. You are running cost of risk below the guidance, right? So my question is: What should we expect for the second half?
Should we see, you know, maybe you outperform your guidance on cost of risk or no, maybe you're doing more provisions, so you keep your coverage very high. What is the outlook here for asset quality? If I may, just a third one, regarding credit appetite, if asset quality is tracking better, when should we start to see loan growth accelerating in Chile? Thank you.
Sure. Thank you for your question, Yuri. Going through your points. First one on fees. Of course, the fee impact that we, you know, we had this quarter is due to the deal that we did with Cardif. This is a 10-year deal with exclusivity on our client base that we are joining to explore opportunities in all the market here in Chile. As we move forward, when I take a look at the insurance business that we have, they are mostly credit driven. That works for us, and I believe that for the most part of the industry as well. They are credit-related insurance that we have.
As we move forward, I think that we are going to diversify away, and that's where primacy helps us in this discussion is diversifying away into more transactional and life-centered insurance model, which goes for life, for housing, for many products that we can explore together. Of course, at this point of the cycle, all the credit issuance is affected. As you saw, there is a lower credit volume throughout the industry. Of course, that affects as well the insurance business on the credit part. Moving forward, the best expectations that we have are around primacy. This is one major difference between the bank that we have in Chile to the bank that we have in Brazil is that here, for most of our clients, we are not their first bank.
Moving towards primacy, and primacy for us has a strong transactional base components, will help us with fees. I think that we have two divergent forces here in which for credit-related fees, I think that we still see some pressure, downward pressure. By increasing primacy through our association, diversifying a way in other products, we are going to have an important impact. I don't see in the short term a strong impact as we did on last quarter on fees. I think that will be a more steadily growth, but we are very ambitious to what we can do with the insurance alliance as well as in fees.
For your second question about credit and credit costs, I think that we see somehow a more stable NPL evolution in the next and the last few months. Nevertheless, because we are just opening the down cycle of interest rates in Chile, we're still in the process of an economic contraction compared to the expansion that we had in Chile and in many other countries in the last few years, couple of years. We are still cautious on this credit cycle. Somehow that connects to the second question that you have about credit appetite. We are monitoring the market, and we are monitoring the credit cycle.
I think that perhaps credit conditions will still be tighter until the end of this year, and perhaps we're losing a little bit to start of this year. I think that the main parameter to gauge how this is evolving is exactly the NPLs that we see for the industry and for us as well. We are taking one month, we're living from month- to- month in a way that we assess the situations and risk. We are on the lower part of our guidance. We are not changing the guidance that we have, but we are working hard to be on the lower part of the guidance.
Still, I think there are economic imbalances that make us cautious within the credit cycle and make us cautious in changing any guidance as of now.
Super clear, Gabriel. Just checking the guidance. I think it's mid-single digits, right? Your loan growth guidance, like something closer to like 4% or 5% for this year, right?
I'm sorry, Yuri, I didn't get the first part of your question. Can you repeat that? I'm sorry.
Sure. Just checking the loan growth guidance. I think it's mid single digits, right? Something closer to 5% year-over-year on loan growth.
Yeah. I think so. Yeah. I think it makes sense for us. We saw this acceleration, especially on the commercial part in the last couple of months. I think that the guidance for growth makes sense. Then again, those combined pairs of NPLs and growth, I think they'll be very sticky for the next 12 months. The ability for growth will be in a better environment on NPLs. I think that we are just a little bit cautious right now, and that's why the focus that we have. It's on profitability, it's on existing client relationships that we have. I think there's much that we can do on this risk-based approach that we have right now.
No, perfect. Thank you, Gabriel.
Thank you, Yuri.
Your next question comes from Alonso Aramburu, and they ask, "Can you remind us of the sensitivity of the NIM to falling interest rates in Chile?
Of course. Hi, Alonso. The sensitivity that we have on our balance sheet, and always you can take a look at the MD&A and the financial statements that we put together, you have all the metrics in there. Strategically, we have been decreasing the sensitivity that we have for balance sheet, especially, of course, in the banking book, of our treasury this year. According to the calculations that we have, taking a look publicly at public information reports that the banks put for the CMF in Chile, I think that we were one of the banks we have the lowest exposure to interest rates on the banking book. This is according to our own estimates.
That tells you a little bit of how we saw the scenario starting at the end of last year and this year. If you take a look at the balance sheet sensitivity to interest rates and the balance sensitivity to inflation, they are very low right now. I think that it was a good way of going through the cycle. As we have a more clearer view, especially that markets also have adjusted prices to lower interest rates this year and the next, I think that we will rethink our strategy and how we position our balance sheet, but we were very light in risk.
Given all the gains that we had from treasury in the last two years, we thought that it would be a good approach to have a lighter balance sheet for all the volatility that we had at the end of last year and the beginning of this year. I think that we will take benefit from the low interest rates, but I think that we manage well the cycle in being very cautious in the way that we manage interest rates and inflation indexing risks.
Your next question comes from the line of Juan Recalde with Scotiabank. Please go ahead.
Hi, good morning, and thank you for taking my question. My question is related to the financial margin with clients, which remains strong in both Chile and Colombia. We also saw some help from financial margins with the market there. The loan growth, especially in Chile, it seems like it's going to be relatively constrained. My question is how do you see the financial margin with clients evolving going forward? Can we expect it at the combined entity to be about BRL 300 billion per quarter going forward? Or how do you see it evolving?
Hi, Juan. Thank you for your question. When I think of financial margins with clients, as you mentioned, we decompose it in three different ways. The first one has to do with financial margins with the market, financial margins with credit, with assets. In there, basically, I think it's driven by volume and spread. As you mentioned, I think that we are cautious in volumes. We have been growing more than the market if you take a look at consumer and mortgages in the last 12 months, but we are cautious in what markets we are pursuing, et cetera. In the commercial side, I think that we are very focused in having value creation. We are very disciplined in making all the cross-selling and also credit that remunerates adequately our cost of equity.
This is one point. I don't think that we are going to see much pressure on spreads. Of course, as interest rates go down, that benefit goes directly to clients. But because the credit cycle is still tight, I personally don't see a market with a major spread compression in the next six to 12 months. That's for financial margins with credit. On financial margins with liabilities, I think that again, they are driven by two factors.
One is volumes, and I think that industry has been decreasing its deposits, especially because what happened during the pandemic and the effects of the withdrawal from the pension plans. We saw a major expansion of deposits within the industry and for us as well. We've been decreasing our volumes less than the industry, so we've been gaining marginally market share on this. We've been able to hedge our exposure to interest rates. We have a model that separates our core deposits and our non-core deposits. Our non-core deposits, they're much more driven by short-term interest rates. Our core part is hedged through a larger cycle. I think that we are well protected on deposits, and we perhaps can see margins on deposits is still growing for the next six to 12 months.
On capital, it's quite the same thing. On capital is where we separate all the capital that we have, and we hedge that exposure in medium-term, medium to long-term in interest rates. I think that we have good margins on this. I see that volume, of course, depends on your ability to generate and retain profits, which, in our case, it worked well so far. On margins, I think that even with what we saw in interest rates going down 100 basis points here in Chile, I think that we are well protected for the short, medium-term in terms of the margins that we have. We don't see much pressure on the short term.
Of course, when we think about a longer term of interest rates going down to historical levels in Chile, probably you're going to see more pressure on financial margins with deposits and also with capital. For the short term, I think that we are still covered on this.
Thank you for the comments, Gabriel, and congrats on the strong results.
Thank you, Juan.
Your next question comes from Francisco Ramirez, and they ask, "What is Itaú's strategy regarding the refinance of the central bank line FCIC 2024? How will the insurance alliance operate in terms of future income, and what is the alliance duration?
Hi, Francisco. Francisco, perdón. I'm sorry. The refinancing of the FCIC lines that we have for the central bank, they are in place. We have liquidity planning. If you take a look at the liquidity ratios that we have, they consider all the payments that we have to do. As you know, central bank in Chile, they put in place last year a regulation that for every single month until the first quarter or second quarter of next year, you have to have that liquidity available in bills or bonds from the government as collateral. So, according to our plan, we are well into the plan. I think the markets were more liquid than we also expected in the first quarter.
I don't see any major issue in doing this convergence. Again, if you take a look at the liquidity ratios that we have and also how we compare to the industry, I think that we are pretty much covered on this. Everything according to plan. With the alliance, the term of the alliance that we have is 10 years. We work distributing the products that we develop together with Cardif within our insurance base. We are remunerated in commissions as we were with any other market company. That's the P&L that we're going to see. It's commissions that we have for every product that we sell.
Of course, the different products they have different commissions, but it's the way that we work had we not had the alliance. What helps with the alliance is a long-term view. 10 years, there is a lot of product development, especially digitizing the client experience in deepening the product understanding the client journey that we see, that helps a lot. On the P&L day-to-day, it's as we were remunerated before with other insurance companies.
Thank you. Your next question is a follow-up from Yuri of JP Morgan. Please go ahead.
Hey, Gabriel, it's me again. Actually, it was about the FCIC lines. You just answered this, so no need to put more energy on this. My question was just how the FCIC line will impact you in 2024. Again, I don't think you need to explore this anymore. Thank you.
The impact on the lines, I think they are twofold, Yuri. Since the publishing of the regulations regarding the repayment of those lines and how you have to put collateral on bills and bonds from the government, that affects your liquidity ratios. In the short term, what you see is that we had to somehow do other funding methods in order to compensate for LCR and especially NSFR impacts on this. When you take a look at the numbers that we have for liquidity, they already consider this. Since the repayment that will happen next year, most of the impact has to do with liquidity ratio management.
Next year, you're going to have a more impact on margins, especially given the cost of those lines vis-à-vis the market rates that we were able to manage our balance sheets on it. We expect a negative impact on this. We are still measuring the impact and doing all the plans that we have for 2024. The flip side to this discussion is, as you have lower interest rates, as I mentioned, we decreased the exposure that we had in our balance sheet to interest rates, but we have, it's not that we have zero exposure to interest rates. With lower interest rates, we are going to see a positive impact on the banking book.
The banking book was suffering this year because of lower inflation and also because of high interest rates. In next year, I think that we're still going to have a low inflation, perhaps lower than we have this year. We have a positive trend on the banking book because of low interest rates. I think that will partially offset the negative impact from the FCIC lines from the central bank. On a marginal basis, I think that the end game is a little bit negative compared to what we have this year.
Your next question comes from Daniel Mora, and they ask, "We observed an improvement in NPLs in Chile, but also a material increase in write-offs. What are the expectations going forward? Do you believe the bank already reached the peak in NPLs, or can we expect a similar pace of write-offs going forward?
Hi, Daniel. As you know, especially on the consumer side, Chile is a little bit different from other countries in the term that we do write-offs. Here in Chile, consumer credits, you do the write-off at 180 days. And so because of this short term, compared to other countries, at the end of the day, you have provisioned something around 70%-75%, roughly 75% of the credits until write-off. Write-off is about 25% of the cost of credit that you have. I think that we have seen higher write-offs from the cycle. That has to do with all the cycle that we've seen at the end of last year and also the first quarter. We see on a margin a better behavior on write-offs.
I don't think that's still increasing compared to what we saw on this quarter. I think that what might happen on the second semester is a still high provisioning rate given the level of NPLs that we have, but lower pressure on write-offs. I still have my questions if we are on the end of the NPL cycle growth. When I take a look at the industry on an aggregate, we see that somehow it's decreasing its velocity. I think that the way that we saw interest rates going down now help that. Labor markets are resilient. I think on the margin, we have good news. I'm just not ready yet to say that we have ended the cycle, that NPLs are not growing.
I think that all that happened with the pandemic and also with the withdrawal of pension funds, it changed a lot of the sensitivity of models, of macro variables. I believe that for all the central banks and for all of us managing cycles, it's a little bit harder to estimate the future, having all the impacts that are very idiosyncratic in the last two, three years. I'm optimistic with what I'm saying. I'm just not ready to say that we have seen the end of the growth of the NPL cycle for us or for the industry. We are taking this one month at a time.
Your next question is a follow-up from Daniel Mora. They ask, "What are the expectations for the Colombian operations considering the cycle of non-performing loans in the country and the challenging scenario for the remainder of 2023? What is the strategy to improve profitability as we continue to see low figures of profitability impacting the overall operations of Banco Itaú Chile?
Fantastic. I think that when I analyze Colombia, I see two different and opposing trends. When I take a look inside the bank, I see that all the plans that we have implementing, the metabolism of the bank and the management, the maturity of the management model, the maturity of risk management, we have increased that in the last two years. I'm glad to see the evolution that we have on our management and execution capabilities in Colombia. That's one factor. The opposing factor here is how you mentioned the market in Colombia. You do see our interest rate cycle larger than expected. You do see NPL market that is stronger than previously thought.
On a margin, we do see more negative news flow from Colombia on the macro trends. Marginally, we see a stabilization, but then again, we're taking, as I mentioned on NPLs, one month at a time. I think that the good part of the discussion in Colombia is that when you take a look at the market in the last two, three years, you saw major increases in portfolio, especially in consumer, that we were not part of it. We were not part of it for many reasons, most of them internal and has to do with developing our risk management capabilities in credit.
I think that was a good thing because some of the NPLs that we have seen on the market, perhaps, and this is a theory, they are connected to a more expansionary cycle that we saw in Colombia within the last two, three years. Again, we are not part of it in growth. That doesn't mean that we are completely protected from the economy as a whole. That's not true. I think that we are affected. I think that marginally, we are less affected than other banks, especially on the consumer side. On the commercial side, I think that all the cleanup of the balance sheet that we did in the last six years in Colombia paid off in terms of our credit concession, provisioning that we do in Colombia.
We did more additional provisions in Colombia, and we've been very cautious in reversing those provisions within the cycle. We did a little bit, but we are doing it very cautiously because I think that will be a longer cycle. We are confident with the building of internal capabilities that we have in Colombia within a more difficult macro scenario. I think that the balance of those forces means that progress is lower in Colombia than we previously thought or wanted. But that also means because we are building internal capability, the moment that the macro plays more positively, I think that we are going to see a rapid evolution in Colombia.
I mean, at the end of the day, that's what we are aiming for, and that's what I'm hoping for.
Your next question is a follow-up from Daniel. "What are the expectations of the financial margin considering the decrease in rates, the normalization of inflation, and the fact that the U.S. exposure is now negative?
I think all the things that you are mentioning is how we are managing the cycle and the balance sheet for the next six to 12 months, right? Because all the hedges that we do, not for interest rates, but especially for inflation, they are short-term hedges. So we have protected our balance sheet for inflation for this year. For next year, we are open to inflation, and we are going to hedge our balance sheet or expose our balance sheet according to our macro view. We're still discussing how we are going to do this, but we see this as an active risk factor that we take into our management decision process.
In the short term, short to medium term, and medium term for me is 12 months, right? 12- 18 months. I think that we are well protected in terms of interest rates for the scenario that we have seen. As I mentioned, in terms of the FCIC payment, I think that will generate a negative impact, but I do see a positive impact in the way that we have positioned our balance sheet. Inflation, the marginal decrease. If you take a look at implicit inflation that we saw in the market, we began the year with something around 5%, then we went to something around 4%, and now we are seeing implicit rates below 4%, perhaps something around 3.8%.
We hedge it at higher volumes, which means that we will not suffer as much as inflation goes down in Chile according to the view that we had at the beginning of the year. On medium term, we are going to be impacted on that for sure, as we see lower interest rates and low inflation. As I mentioned before, for financial margins with the market, with the liabilities and also with, we're going to see negative on those fronts and we're going to see that positive on the banking book. What we are doing as a bank is offsetting market movements with how we position the bank, right? Because that's the discussion about prices. I mean, if we only act on prices, then it's how market volatility works and how our hedging ability works, right?
I think that the way that we have to manage the banking thinking medium to long term is how we are able to change the mix and change the volumes of deposits, for instance, based on our primacy, in which I'm able to defend my margin, even with other scenarios. Of course, the current account deposits that you have in which you pay, 0% interest, at 11% interest rates, they are worth something. At 3% interest rates, they are worth another thing. Having more volumes than you have at 3% is better than zero. I think that's the more important message, is that I think that we did well in terms of balance sheet management, price management, hedge management.
The way that we will converge to the results that we want, to the profitability that we want, it's through primacy and our ability to engage clients transactionally with the bank, with higher deposits and higher fees. I think at the end of the day is this.
There are no further questions at this time. I will turn the call back to Gabriel Moura for closing remarks.
Fantastic. Thank you so much, everyone for listening and for the questions. As always, Rodrigo, Claudia Labbé, Matias, and I are always available to you for any follow-ups, and we see all of you in the next quarter. Take care.
This concludes today's conference call. Thank you for joining. You may now disconnect your lines.