Feb 5, 2015
Executives
Raimundo Monge - Corporate Director, Strategic Planning Robert Moreno - Manager, IR
Analysts
Thiago Batista - ITAU BBA Securities Philip Finch - UBS Tito Labarta - Deutsche Bank José Barria - Bank of America Merrill Lynch Saul Martínez - JPMorgan
Operator
Good day, ladies and gentlemen and welcome to the Quarter Four 2014 Banco Santander-Chile Earnings Conference call. My name is Caspian and I will be your operator for today.
At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.
[Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr.
Raimundo Monge, Corporate Director of Strategic Planning. Please proceed sir.
Raimundo Monge
Thank you very much. Good morning ladies and gentlemen, once again welcome Banco Santander-Chile’s fourth quarter 2014 results conference call.
My name is Raimundo Monge, Corporate Director of Strategic Planning, and I'm joined today by Robert Moreno, Manager of Investor Relations. Thank you for attending today’s conference call in which we will discuss our performance in the 4Q 2014 and for the year 2014 as a whole.
Following the webcast presentation, we will answer your questions. Before we get into more detail regarding our results, we will briefly give our latest update on the outlook for the Chilean economy in 2015 and 2016.
We expect the economy to rebound in 2015 and 2016 with the GDP growth of around 2.5% up to 2.7% in 2015 and around 3.5 in 2016. Internal demand at the same time should expand 2.3 in 2015 and close to 3.8 in 2016.
Inflation rates measured by the variation of the UF and inflation-linked unit and the most relevant indicator for the Bank should increase between 2% and 2.5% in 2015 as international food prices have dropped considerably in recent months. We expect inflation to return to more normal levels of around 3% in 2016, given this inflation outlook we’d expect the Central Bank to cut interest rates further 50 basis points in 2015.
The expected rebound of the economy should be driven by various factors. First of all the outlook of Chile’s main trade partners especially in U.S.
continues to strengthen, extra growth as mentioned in GDP figures should expand at around 4% in all 2015 and 2016. At the same time, the fall in international oil prices is another possible event for the Chilean economy as Chile imports most of this oil.
Regarding investment, in 2015 and 2016 we are expecting a recovery following the contraction fee in 2014. This should be driven by the greater investment expected in its structure in the energy sectors.
Finally, total consumption including government expenditure should continue to grow at around 4% in both 2015 and 2016. All-in, this should represent a relatively supportive macro environment for banks.
For this reason, loan growth should continue to grow close to 8%-9% in 2015 and 2016. We expect ROE in the system to fall in 2015 due to lower inflation and higher corporate taxes, but calibrating in asset quality trends should remain healthy.
Now we will review how the Bank continues to move forward in its strategic objectives and the main commercial results achieved in the year. The evolution of our results in 2014 reflects the high inflation rates.
But more importantly, the Bank continues to experience robust core business trends despite the lower growth of the economy. We attribute this to our business strategy of focusing growth in those segments with the highest net contribution.
This has been achieved with an increased use of our new customer relationship management platform CRM, improved quality of service and strong growth of transactions in alternative channels. At the same time, the evolution of our asset quality indicators also show that the different changes in our accredit approach are started to be positive contributors to the Bank’s profitability.
Our capital levels also remain robust. All of the above should allow us to continue to achieve an optimal balance between our return on equity and our cost of capital.
By maximizing these gaps we should be able to expand shareholder value on a consistent way. In terms of our first strategic goal, focused growth; in fourth Q 2014, total loans increased 2.8% Q-on-Q and 9.3% year-on-year, the Bank’s focus on expanding and also following higher income segments while remaining more selective in lower income segments and SMEs.
Lending to individuals increased 4.4% Q-on-Q and 13% year-on-year. The other element of relevant growth in the loan book was in the Middle Market segment in the fourth quarter of 2014 loans in this segment increased 1.1% Q-on-Q and 8.1% year-on-year.
Loan growth in this segment was focused on mid-sized exporters, which are benefitting from stronger external conditions and the weaker peso. For the past two years, the Bank has proactively executing its strategy of shifting the loan mix towards less riskier segments and returning of improving profitability on a risk adjusted basis.
To-date 62% of the Bank’s loans to individuals are in the mid high income segments compared 54% in 2012 otherwise the percentage of loans to individuals in Santander Banefe are unit aimed to the lower end of the consumer markets have fallen from 8% to 6%. As we will see in the rest of the presentation this shift is resulting in a better margin net of risk and higher and more stable long-term profitability outlook.
As a side comment, a good example of these positive outcomes or the positive outcome of this strategy, are the results for the Santander Banefe. In 2014 the rate of net interest income fell close to 7% but provisions expense fell close to 18% year-on-year.
As a result, Santander Banefe result increased 5% in the year. These results are relevant considering that in recent years the native nature of relations that hit its margins and fees while confronting a worsening economic outlook.
The Bank’s core deposit base that is checking accounts and non-wholesale prime deposits continues to strengthen in the fourth quarter of 2014. Total deposits increased 3.9% Q-on-Q and 10.4 year-on-year.
Core deposit increased 16.3% in 2014 and now represents 7.9% of total deposits compared to close to 74% by the end of the 2013. This was led by the 13.2 Q-on-Q and 15.3 year-on-year rise in non-interest bearing demand deposits.
As growth is the key in our loan book, the Bank also performs an important shift in expanding mix toward a cheaper and more stable founding base. In the last two years our market share in checking accounts has increased from 20% to 21%, our market share in non-institutional time deposits has risen from 20.7% to 22%.
As a result, our total market share of core deposit has increased a 110 basis point to 21.5%. Apart from improving our funding cost, this funding strategy also placed us in a good position to complying with the Central Bank’s new liquidity requirement which were recently published.
The effectiveness and execution of our loan and funding strategy has been based on the growth of our client base and the improvement of our commercial approach, our second strategic goal. The fourth Q of ’14, the Bank achieved positive net client growth for the seventh consecutive quarter.
The client base has grown 7.2% in this stretch, which started at the end of the first Q of ’13, when the Bank completed the deployment of the CRM and launched the Santander Select brand for higher income client. Clients in the higher income segment have increased 17% in the same period.
So December 2014, the Bank had a total of around 3.6 million clients. This growth in client has been achieved improving our service and with important rise in productivity.
In 2012, the Bank has reduced by almost 5% its branch network, 18% the ATM network and 2% its headcount. We have closed unprofitable branches in Santander Banefe and opened a new network for Santander Select.
At the same time, we closed various payment centers. As shown in the three previous slides, these have not affected our distribution capability, in fact we have improved.
These were possible given the important rise in the usage of our new channels. The percentage of transactions now performed outside the branches reached 87% in 2014 and the amount of bill payment and transfers performed electronically instead at the branches reached 73%.
Finally, more than half of the parcels are now taken electronically instead of at the branch. In terms of our third strategic goal, managing risk, the transformation project is also resulting in a safer seat, which is the key element in our strategy to obtain higher margins net of provisions.
These efforts are reflecting the sound evolution of impaired consumer loans that is consumer non-performing loans plus renegotiated consumer loans, especially when compared to our competitors. Since June 2012, impaired consumer loans in the Chilean banking system excluding Santander-Chile have increased 60% compared to a drop of 15% in the case of Santander-Chile.
As a result of this improvement in impaired consumer loans, the expected loss of our consumer loan portfolio has been reduced considerably. The improvement in asset facility has also been appearing other parts.
In 2012, in non-performing loans and commercial loans have fallen slightly and coverage has increased from 78% to 108%, reflecting our efforts to both coverage and SMEs. In mortgage lending the NPL ratio has decreased from 3% to 2.7% with coverage rising to 27%, reflecting our efforts of reducing loan to values in that business.
For the home loan book NPLs have fallen from 3.2% to 2.8% in the same period with coverage rising from 92% to 109%. The Bank also concluded 2014 with strong capital ratios.
Our core capital ratio reached 10.9 by the end of the year, the highest among our main peers with the Basel I ratio of 14%. We have not issued shares in more than 12 years, while maintaining an attractive dividend yield and being well prepared for the drive of transition to BIS III spenders.
We have among the highest credit rating at the Bank at work the ultimate goal of our strategy is to maximize the difference between our ROE and the cost of equity. Despite lower ROEs expected for 2015, the higher calendar base, lower interest rate environment and the improved risk profile have also reduced our cost of equity from historical levels.
With our lowered cost of capital today we have what we -- one of the largest positive gaps between ROE and cost of equity in the banking world. This is our approach for maximizing shareholder value on a consistent basis.
Now we will explain the evolution of our quarterly results. In the fourth Q of 2014, net interest income increased 19.2% Q-on-Q and 21.2% mainly due to the higher quarter inflation rate, solid loan growth and the better funded mix.
The net interest margin in fourth Q ’14 reached 5.8% compared to 5% in the 3Q14 and 5.2% in the fourth quarter of ’13. The rise in long-time net interest income was due to higher quarter inflation rate.
The possible gap between assets and liabilities indexed to the U.S. averaged CLP 4,251 billion around US$7 billion in the fourth quarter of ’14.
This implies that for every 100 basis point changed inflation, our net interest income increases or decreases by CLP 43 billion all other factors being equal. We expect U.S.
inflation in 2014 to be between 2% to 2.5% as mentioned. This reduction compared to 2014 is mainly due to the fall in fuel prices which is good news for the economy and our clients.
The decline in U.S. inflation will be a constant tradition and be concentrated in the first Q of ’15 where we expect U.S.
inflation to be between around 0.5 or 0.7 negative, and right into around 1% in the second quarter. We are reducing our U.S.
GAAP and we expect interest rate to fall further which will have a positive effect on the margin and the Bank’s fixed income portfolio. Client NIMs on the other hand remain relatively stable Q-on-Q and reached 5.4% in the last quarter.
In this period, client NIMs in the Middle Market and Corporate segments increased as the lower spreads have been instable and the funding mix improved. This was offset by the reduction in client NIMs and individuals, according to sequence of the shift of the low mix to higher income segments which has resulted in a relevant reduction in the risk of this segment that is more than offsetting the lower margin.
Fee income continues to rebound, net income increased 6.4% Q-on-Q and 6.2% year-on-year. Because of the rise of clients’ checking accounts, insurance broker and card related fees showed positive growth trends.
Fees from our business segments which exclude the effects of regulation and other non-segmented fees increased 5.7% Q-on-Q and 22% year-on-year. This evolution of fees reflects the Bank’s effort of expanding the client base and to increase cross-selling in the retail segments.
Fees from Corporate Banking also grew positively in the quarter due to strong performance in financial advisory and transactional service in the quarter. In fourth Q ’14, the Bank’s total core revenue that is net interest income plus fee income was up 17.1% Q-on-Q and 18.8% year-on-year.
The Bank’s core revenues from its business segments which exclude among other things the impact of inflation, was up 1.4% Q-on-Q and 8.8% year-on-year. The Bank’s core revenue from business segment has increased for five consecutive quarters despite improved risk profile of the client base.
Asset quality was stable in the quarter. The Bank’s total non-performing loan ratio decreased 10 basis points to 2.8% in the fourth quarter compared to the same period of 2014 and the previous quarter.
Total average of non-performing loans with provisions in fourth Q ’14 reached close to 109% compared to 104% in 3Q and 99% in fourth Q ’13. Provision for loan losses increased 10.5% Q-on-Q and 24.7 year-on-year in the quarter.
In this period, three elements effected provisions for loan losses. First loan growth resulting in high provisions as the Bank suspected loss model to require the recognition of provisions the moment loans are granted.
Two, the Bank recognized approximately CLP 20 billion in above normal provisions for further improvements made through the provision modeling consumer lending and the downgrade of strategic loan positions mainly in the SMEs and Middle Market segments. And thirdly, the depreciation of the exchange rate and the high inflation rate in the quarter which resulted in greater provisions of their loans denominated in foreign currency and in U.S.
As we mentioned in the beginning of this presentation, we feel comfortable about the evolution of asset quality in our loan book in 2014. For the whole year in 2014 the Bank’s total net provision expense rose 2.9% in the year.
The cost of credit reached 1.7% in 2014 compared to 1.84 in 2013. This result reflects that despite the slowdown in economic activity the Bank’s asset quality remained healthy throughout the year.
As of December 2014, the net provision expense in the Chilean banking systems excluding Santander-Chile increased 21.8% year-on-year that is almost grew 10 times. The end result was in 2014 our margin, net of provisions improved or were stable in more segment.
As explained previously, the Bank has been shifting the loan mix over less riskier segments with an aim to improve profitability net of risks. This was partially offset by the weaker result in the SME segments, which was affected by the re-calibration of the provisioning model done in the second half of the year.
We expect this segment to see an improvement in provisioning levels and accordingly margins net of risk throughout 2015. The efficiency ratio reached 36.9% in 4Q14.
For the full year 2014 the efficiency ratio reached 36.8%, compared to 40.4% in 2013. Operating expenses including impairment and other operating expenses increased 7% Q-on-Q and 9.8% year-on-year in the fourth quarter of 2014.
Personal salaries and expenses grew 5% Q-on-Q and 15.9% year-on-year with total increase in variable incentives after the solid year the Bank had in all segments and the effect of the higher inflation rate over salary, headcount levels have remained stable. Administrative expenses decreased 0.9% Q-on-Q and increased 10.3% year-on-year.
This rise was mainly due to number one, greater business activity that has resulted in higher system and data processing costs; number two, the effects of a high inflation rate over cost index inflation and number three, the ongoing investment to continue optimizing the Bank’s network as previously mentioned. All of the above, we saw in a solid 2014 year and the final solid fourth quarter of 2014.
Our year-to-date earnings were considerably up allowing the Bank to obtain world-class indicators, an ROE for the year of 22.5% and efficiency ratio below 37%. In the quarter, we benefit from higher inflation but also from robust core business trends.
The Bank has been able to take normalized ROEs between 18.5% and 19.5% in the last two years, assuming a 3% constant yearly inflation for both periods. With this normalized ROE level, we can conclude that 2014 was a very solid year for the Bank with quality results both in the year and in the last quarter.
The most important for us has been the fairly stronger business trends are good and in reflecting the factors of our transformation project started three years ago. In 2015, we expect this sound core commission trends to be remain albeit with a lower U.S.
inflation and higher corporate tax rate, which should reduce stated ROEs especially in the first quarter of ’15, but without changing our solid medium-term outlook. At this time, we will gladly answer any questions you might have.
Question-and
Operator
Thank you. [Operator Instructions] First one to begin, and please stand-by for your first question which is from the line of Thiago Batista.
Please go ahead.
Thiago Batista
I have two questions, the first one is regarding the down rates you did in the SME and Middle Market segment, could you give to us some additional color about those down rates and if those two segments could present some deterioration in the ratio during coming quarters? And the second question is about the U.S.
GAAP is it possible to try to reduce at least slightly the GAAP you have especially in the first Q as the pressure will be really very low?
Raimundo Monge
Okay, well in terms of positions both in the SMEs and the Middle Market, as you know these are -- the Bank really for especially larger clients they has to be conservative at all time, but especially now that we have seen softer growth trends and accordingly given that we have had a very strong quarter and year and the expectations are that economy will have assorted growth also in 2015, we prefer to downgrade proactively positions that are fine to be. But you never know what to expect in the future.
So, you think the reflection of our prudent approach as we have seen actually non-performing loans has been improving in the last say 12 months, but given that we have a strong year we prefer to be more prudent than not going forward. So there are simply positions that in the margin make us believe that some deterioration could be seen and therefore we prefer to have a completely balance sheet to start the year 2015 without any pending renewals something say that.
In terms of the U.S. GAAP, as we mentioned in the call we have been in the process of reducing it, but again remember that our approach is medium term and although we know that inflation will be negative in the 1Q as we have already stated, we think the inflation is positive and if you take a two year perspective, we will be making money with what we got, so remember that we tend not to manage the Bank having a quarter-on-quarter view but a more medium term view and this gap is beneficial to some extent to our results but of course it reduces for a period, the business position that is open by the commercial activity of the Bank which is what we’re trying handle.
So it’s fact of the market that sometimes you will have a higher than normal inflation, lower than normal inflation in the following quarter, but we refer to manage the Bank from a medium terms perspective and try not to open or close gaps simply because of the expectation of the following month or following quarter in inflation. And given the relevant large size of the Bank compared to the size of the market, the process cannot be done quickly enough because we will be to some extent sort of dicing or changing the thesis of the papers or contracts that you can use to hedge that.
So that’s why we tend to be medium turn oriented and as we mentioned in the medium term, we will be making money with this mismatch which again is not a gap that we opened on purpose but it’s simply the way the market is structured.
Operator
Thank you. The next question is from the line of Philip Finch from UBS.
Please go ahead.
Philip Finch
First of all in terms of your tax rate in the fourth quarter obviously came down, could you explain what drove it down, and what were the key drivers for that but also going forward what we should assume for tax rate for 2015? And secondly, just to go back to what you were saying in the presentation about the sensitivity to inflation, you were saying that for every 100 basis points for or change in inflation your NII change in Chilean peso would be 43 billion just given that what is your expectations for inflation in the first quarter, you gave us guidance for your forecast for the full year of 2015 but for Q1 specifically what you are looking for there?
Thank you.
Raimundo Monge
Well in terms of the tax rate in the fourth quarter what we saw was a combination of two elements that drag the effective tax, as we put in our first release inflation, it tends to reduce the effective rate because for tax purposes. The capital of the Bank is adjusted by the inflation so the higher the rate the lower the effective rate we tend to pay simply because of the inflation, it’s a little a bit fainter but we have a chart or a chart in the press release that hopefully will help you to understand what we’re talking about.
The second element is linked to the new tax bills that by increasing the rate that we prevail in the future make more valuable the tax loss carry forwards the Bank’s going to have yes. And in the third quarter we have been this even more color of what to settle this is the calculation that depends on the criteria set for the integrity of that or the presentation of new tax bill.
So what’s why we saw some non-cash positive impact in this quarter, so it’s simply something that is not repeated and as we pulled that it helped, but of course it was contemplated by other provisions that we have been taking throughout the quarter to try to have relevant between a quarter. Going forward unfortunately we still don’t have full clarity of what to expect because there are some probabilities that the effective rate will be and traditionally in the recent years we were able to reduce the rate from the statutory rate about the 100 basis point on average.
But today we don’t have clarity, we are not clarify because the internal revenue service we are providing is effected on a daily basis and themes of what to expect, so it’s difficult to know. But definitely we will be a little bit lower than the statutory rate, how low, whether it’s consistent with that 300 basis point reduction or not it’s difficult to say now.
So it’s for practical purposes -- it's unfortunate that calculation that we’re every moment trying to understand. And in terms of the sensitivity to inflation, as we stated in the call, our expectation for this first Q is a negative inflation of something close to 0.5% up to 0.7% of the U.S.
variation which is what is relevant for the Bank.
Operator
Thank you. The next question is from the line of Tito Labarta from Deutsche Bank.
Please go ahead.
Tito Labarta
There is a couple of questions also just on the provision in addition to the downgrade with SME and Middle Market you also mentioned you were calibrating a little bit the consumer loan model reduce that also to CH$10 billion in additional provisions, just can you tell us a little bit more about what you were changing and do you expect any more changes that staff had also issued some switching I think more to the mortgage provisioning models, do you expect any changes from that, just wanted to understand a little bit what drove that and do you expect any more provisions or just this new models going forward? And then the second question is in terms of fee income, we saw a descent increase in fees, which have increased flat most of the year.
Could you tell us a little bit more what you expect for fees going forward? Now I think a lot of the regulatory pressures are little bit behind you, so how much do you think you can sustainably grow in fee income going forward?
Thank you.
Raimundo Monge
Okay, in terms of the provision, as we stated in the previous quarter, we were -- we’re calibrating the mortgage -- which is a process that we do every other year more or less without fail of course dependent and drawn under specific conditions. So this process we have balanced in the third Q and it was not fully finished, today it has been fully finished and that’s why we should expect a relevant impact going forward at least for the voluntary 2015 due to these regularization given that it is almost, but included.
In terms of -- and simply these are fairly complex models that have a number of parameters that if you do have changes on them you have positive and negative and the net-net for this quarter was a negative of close to CLP 10,000 billion. But at the same time what is relevant at the end of the day is how your provision expenses, sorry excuse me, how you’re non-performing loans levels are performing and that as we mentioned in the call to be relatively cyclical or we have a positive view about asset quality going forward.
In terms of fees, fees are starting to bounce and basically because of what we have hinted in the previous quarter that at the end the best correlation is between a number of clients and fees after a large offering nine-12 months. Once you start, you are increasing your client base as we started last year it tends to diminish that in terms of fee growth but with a lag.
And that’s why we think that in 2015, we should maintain a growth in the high single-digit, middle single-digit level given that our client base has been growing at around 6% on a yearly basis. So that unless you have other rounds of regulation as you correctly point, we haven’t seen that for almost three years, it could be possible to achieve that kind of getting to high single-digit growth in 2015.
Operator
Thank you. The next question is from the line of José Barria from Bank of America.
Please go ahead.
José Barria
Hi Raimundo, Robert thanks for the opportunity, I have a few questions. The first one going back to asset quality and what happened in the quarter, you mentioned downgrading certain clients or certain loan positions in SME and Middle Market segments.
Can you tell us if that was in a sector or country and what specific sector or was it across the board, any clarity on that would be great? And I’ll stop here and then I’ll ask the second and third question I have afterwards.
Raimundo Monge
No, particularly what is our specific sector is simply you review the positions, you are continuously monitoring a specific clients in different sectors, and in the margins you prefer to be more conservative given that you have a very solid quarter. Anyway, so that’s why it’s not a reflection of any season wide or sector wide, the duration simply specific positions in different sectors of the economy.
José Barria
What drove the -- and going back to fee income, and we saw very good evolution in two items one was insurance brokerage fees and the other one was other fees which we have a lot less visibility in. But could you tell us what drove the significant increase in both of those lines in 4Q?
Raimundo Monge
In insurance it is well have been monitoring on our campaign -- a larger campaign of especially open market insurance which are not related with greater operation, but also create related insurance especially on the mortgage side and that has been growing very fast has also been fueling that line. In terms of the others, well others is number of things are moving there, but they are mostly is related to in the corporate side, a medium sized vehicle on large sized plans.
But it's difficult to predict how that line will evolve, so it's a -- we’re not still growing or actually if you see the growth of the business sector it has been growing faster than what I mentioned, but we think that that can stabilize going forward, so still it is difficult to know there are many things in that line and therefore it’s difficult to predict.
José Barria
And going back to your macro slides, you guys are forecasting a 50% reduction in Central Bank rates what should we expect the impact of that to be on your margins to that specifically just the change in Central Bank rates?
Raimundo Monge
Yes, if you achieve that on an unrelated basis then we represent CLP 12 billion to CLP 15 billion, that is part of the hedge that this deterioration has on inflation on time. And that’s why as we have mentioned before the fact of inflation goes at not necessarily is good because usually it’s followed by high rate and now when inflation is coming down, not necessarily is that because it’s also followed by lower rates.
And that’s why these kinds of financial components of our profit and loss statement is less relevant on a medium terms perspective than what you would imply simply by seeing short-term quarter figures, that has to be taken into account when looking at Chilean Banks.
José Barria
And then in terms of the timing that when you expect this cut first half, second half?
Raimundo Monge
It’s difficult to know because right now inflation is going very low and therefore that gives the Central Bank further breathing space. And I have been running though basically because of oil prices which are starting to bounce back again, so they don’t have any -- the Central Bank has no rush to do it.
But we’re certainly that if the core inflation keeps going down with a broad measures of inflation, they will be in a position to lower rates, so not very sure the exact timing probably second quarter on, not in the first Q.
José Barria
And just finally very quickly, I’ve seen you guys are forecasting acceleration in growth next year or GDP growth relative to 2014, what does that imply for loans, do you expect loan growth to be higher than what you saw in 2014?
Raimundo Monge
No, what we have seen maybe is a pickup in loan growth but probably it’s better there to expect some slowing down. We finished the year with growth of 10%-11% but because of the one-time increase in mortgaging which has led to tax fee.
If you deduct that and you deduct the high inflation level that also fuels that the growth in U.S. loans next year as we stated in the conference growth of 8%-9% can be more reasonable.
The economy today that there was a reading of the monthly GDP indicator that also is a very good bank and that’s why it was to jump. And that’s why we think 8% to 9% can be achieved.
Tradition in Chile loans have been able to grow two times GDP growth, so if you add inflation then it will be growing 2.6%-02.7% times two plus inflation is very close to 8%-9%.
Operator
Thank you. And the next question is from the line of Saul Martínez from JPMorgan.
Please go ahead.
Saul Martínez
A couple of questions, I apologize if you already addressed some of these questions, I got on the call a little bit late. But first on the expenses which seem to have had a pretty big uptick just sequentially and quarter-on-quarter, can you comment on that and what your expectations are for costs going forward because part of the earnings thesis has been that cost control would remain in place and that that would help drive descent profitability?
And then secondly just on a more normalized how you think about a more normalized ROE obviously the deflation, inflation will cause variations in reported ROE on a sequential or on a quarterly basis, but in the more normalized ROE scenario whether that be 2.5%-3% are you still comfortable that a 19%-20% ROE is feasible. When I look at this quarter it seems like there a lot of moving parts not just on inflation, on provisions, on your other OpEx expense line where you had some contingencies cost but it’s hard to kind of decipher how much is it you being conservative and how much is really core or reflects core results, can you -- how comfortable are you that through cycle inflation normalizing higher tax rates and all the moving parts that 19%-20% ROE is sort of the feasible base case to look that over the next couple of years?
Raimundo Monge
Yes, well in terms of expenditures especially during the last quarter, we provisioned for bonuses and special prices given that the Bank in the last three or four years has been close to 20% of our annual remuneration are directly linked to bonuses and tied to performance and as a consequence of the strong year, we have booked more prices for because people are doing, we are doing an outstanding job, and that having fair for to share part with the team. So it shouldn’t be repeated and I would say that looking towards 2015, growth on an annualized basis of 5% to 6% are more reasonable not the level we saw in 2014 specially the end of 2014.
And so this group has the culture of cost control and given that we have these tools, these are the enhancing tools, we think we can increase our efficiency and increase our performance simply by getting more revenue out of clients, more than by slashing cost, probably the cost side is very most of you have done, but on the revenue side by using the CRM, by using this new and enhanced growing models we think we can get a high profitability out of our a clients, think by knowing them a little bit better. In terms of ROE, it's a difficult question because up till now we have been hinting ROEs of 19%-20% adjusted by under normalized 3% inflation, we got that level both in 2015 and 2014.
Going forward, we have some doubts about the expense of reductions, the using in that stated ROE from a medium-terms respecting in fact we kindly did that from an analyst from an intentional standpoint specially according the best that we see about to follow our shareholder is not that meaningful because although the Bank will be paying more taxes, you will receive a supporting just more credit and therefore your total tax payment which is at the end what we should really deduct from whatever you get it will change for foreigners and it is only for the changing for local investors. That’s why although the stated ROE could be lower from evolution standpoint, that shouldn’t be quite important for shareholders.
So end of the story, we think that again if you take the new tax structure probably 20 it's a little bit too high, could be a little bit lower depending on what is the effective rate you use all-in to value the Bank. So, it's the calculation that we still do it’s comfortable but the recent story is that the Bank is doing well in the commercial side which at the end this just create value in apparent way.
Operator
Thank you. I would now like to turn the call over to Mr.
Raimundo Monge for closing remarks.
Raimundo Monge
Okay. Thank you all very much for taking the time to participate in today’s call.
We look forward to speaking with you again soon. Have a good day.
Operator
Thank you for joining today’s conference. This concludes the presentation.
You may now disconnect.