Banco de Chile (BCS:CHILE) Q2 2026 Earnings Call

0:00 Good afternoon, and welcome to Banco De Chile first quarter twenty twenty six results conference call. If you need a copy of the financial management review, it is available on the company's website. Today with us, we have mister Rodrigo Aravena, chief economist and institutional relations officer, mister Pablo Mejia, head of investor relations, and Daniel Galarce, head of financial control and capital management. Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include forward looking statements regarding the company financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially.

0:46 Please refer to the detailed note in the company's press release regarding forward looking statements. I will now turn the call over to mister Rodrigo Aravena. Please go ahead.

0:58 Good afternoon, everyone. Thank you for joining this quarterly conference call where we discuss the overall performance of the bank as well as the main trends observed in the business environment. We have completed another positive quarter performing well in several key everyday areas, such as profitability, demand deposit, market share, and asset quality, while maintaining the largest coverage ratio among peers and the soundest capital adequacy among relevant peers. We also achieved important milestone in nonfinancial areas, such as the increased adoption of digital and AI tools, productivity and ESG, which we'll discuss in more detail throughout this presentation.

1:44 As usual, I'd like to begin with an analysis of the economic environment. Please turn to Slide number three. The beginning of this year has undoubtedly been marked by a significant shift in global conditions, driven by the escalation of the geopolitical conflict in The Middle East. Tensions in global energy markets have led to a significant extent of supply shock with important consequences across the global economy, particularly in terms of inflation. As we've mentioned in previous conference calls, Chile is a small and open economy and, therefore, vulnerable to external shocks. As shown in the chart on the left, the CPI clearly reflects how this global trends affect our economy, increasing by 1% in March, mainly driven by higher fuel prices during the month. As a result, inflation during the first quarter reached 1.4% year to date.

2:44 Also, CVI excluding volatile items increased by 0.5% in March, reflecting the absence of relevant pressures at the core level, at least for now. We expect this pressure to intensify in the short term as can also be seen in the chart. CDI has likely increased to around 1.6% for the month of April, by further increases in fuel prices in recent weeks in the presence of some second round effect, mainly related to index prices. This would significantly rise inflation in the first half of the year. This development have contributed to significant adjustment in inflation expectations.

3:30 As shown in the chart on the top right, breakeven inflation rates implied in swaps have increased by more than a 100 basis points, moving above 4% for this year. In fact, a few weeks after the beginning of the war, expectation rose even further, reaching almost 5%. This shift in marketing price expectations is also consistent with the results of the economic expectation survey, which now anticipates inflation of 4.3% this year. For longer horizon, expectations remain anchored at the 3% target. In this environment, the Chilean Central Bank has adopted a more cautious monetary policy stance.

4:17 In March, the board not only decided to keep the policy rate unchanged at 4.5%, but also removed its previous easing bias. Specifically, they pointed out that the war in The Middle East has evolved more negatively than in the baseline scenario, which increases the probability of more adverse impact on global activity and inflation. Accordingly, it will closely monitor the factors that could increase the pass through and the persistence of inflation on local prices. Thus, board member noted that future policy decisions will be assessed at each meeting, leaving open the possibility of a rate increase if needed.

5:02 According to the forward guidance in the monetary policy report, convergence toward neutral levels, around 4.25%, will likely be postponed until next year. I would now like to turn to recent development and economic activity. Please go to Slide number four. The Chilean economy funded by 2.5% in 2025. This stronger than expected performance was largely driven by more dynamic domestic demand shown in the top left chart. Specifically, at the chart on the bottom left display, there's been a clear shift in the composition of growth with consumption investment making a larger contribution to overall GDP growth.

5:48 In 2025, gross investment grew by 7% after contracting by 1.6% in 2024 despite overall GDP growth remaining broadly similar in both years. Consumption also improved with growth accelerating from 1.4% to 2.8% over the same period. Investment momentum has strengthened in the fourth quarter as gross investment expanded by 9.7% year on year, supported by a strong 22.9% increase in machinery and equipment investment. Nevertheless, monthly GDP growth has slowed at the beginning of this year. This can be explained by weaker performance in sectors such as mining as well as a normalization in commerce, partly reflecting a high comparison base from a year earlier.

6:41 However, several lean indicators point to growth ahead. As shown in the top right chart, the main confidence figures have shown an upward trend in the last few quarters. Thus, these factors support a favorable outlook for economic activity in the coming quarters. Turning to the labor market, the employment rate has remained between 89%. In the first quarter, unemployment increased to 8.9% from 8.7 a year earlier. While unemployment remains elevated compared with previous cycles, we expect a stronger investment growth and improved performance in labor intensive sectors such as construction to gradually translate into lower unemployment going forward.

7:28 I would now like to share our baseline scenario for 2026. Please turn to Slide five. In terms of activity, we expect GDP to grow in line with its potential. Our forecast of 2.1% for 2026 implies a slight slowdown compared with last year, reflecting both weaker global growth expectations and a less expansionary fiscal stand announced by the government. Nevertheless, we continue to expect investment to grow faster than GDP, partially offsetting a weaker contribution from net exports. Compared with our previous conference call, we have revised our inflation forecast upward to 4.3% from 3%.

8:16 This revision mainly reflects higher oil prices, which are expected to put inflation significantly higher in the first half of the year.

8:26 Our baseline scenario assumes a rather normalization in international oil prices during the second half, together with contained second round effect, largely limited to index prices, while inflation expectations remain anchored and labor cost pressures stayed moderate. Under this scenario, we expect the Central Bank to keep the policy rate unchanged at 4.5% through 2026, postponing interest rate normalization until 2027. Finally, we are aware of the unusually high level of uncertainty in the global economy. Domestically, close attention should be paid to the ongoing congressional discussion around the government proposed reform, which aim, among other objectives, to provide additional support to economic activity.

9:18 Key measures include a proposed gradual reduction in the corporate tax rate from the current 27 to 23 over a three year period, greater tax certainty for future investment, lower municipal property taxes on housing, and improvement to the permitting and licensing framework. This discussion is expected to take time, and implementation is likely to be gradual. Before moving to the bank analysis, I'd like to review the main trends observed in the local banking industry. Please move to next Slide six. As illustrated in the chart on the top left, the banking industry posted net income of COP 1,300,000,000,000 and a return on average equity of 14.4% in the first quarter of this year.

10:09 While this result represents a nominal decline of 6.9% compared to the same period last year, it continued to reflect the sector's capacity to generate solid profitability in a context of lower inflation. Turning to asset quality, the chart on the top right shows that nonperforming loans remain relatively stable for the industry at 2.5% with a covenant ratio of a 142%, consistent with recent quarters. On the credit side, the bottom left chart shows that the loan's to GDP ratio rose slightly on a sequential basis to 74% as of March 2026, but it's still below pre pandemic levels, confirming the subdued pace of credit growth relative to economic activity in recent years.

11:01 Consistent with this trend, the bottom right chart highlights the prolonged weakness in real loan growth. Since December 2019, total loans have declined by 1.7% with consumer lending experiencing the target contraction at 14.1%, followed by commercial loans at 9.9%, while mortgages stand out as the only segment posting real growth, increasing by 20.2% over the same period. Looking forward, we expect industry loan growth of around 4.5% in nominal terms by year end 2026, driven by a recovery in commercial lending, expanding around 4% and supported by improved business sentiment and investment under a more favorable market friendly policies.

11:54 Consumer mortgage loans are suspected to grow between 4.55% nominal, reflecting a moderate rebound in consumption and ongoing effort to support the housing market. Considering higher expected inflation in 2026 and a post in monetary easing, we have revised our industry net interest margin outlook to a range of 3.6% to 3.8%. NPLs are projected at 2.32.4%, and credit loss expenses stable at 1.21.3%. Now I will turn the call over to Paulo to discuss Banco De Chile's result for the quarter. Thank you, Rodrigo. Please turn to Slide eight.

12:42 This slide summarizes our strategy, committed to excellence and proven by results. At the core, our strategy remains unchanged and well executed. Customer centricity, efficiency and productivity, and sustainability. These three pillars guide how we operate, how we allocate resources, and how we create value for our stakeholders. In the center of the slide, you can see how these pillars translate into six core priorities. These are not aspirational. They are being actively executed across the organization, and the results speak for themselves. As you can see on the right hand side, we continue to deliver a solid track record of profitability, supported by high quality customer base, a well diversified operating income base characterized by the resilience of customer related income, leadership in local currency demand deposit and capital, and a comprehensive digital offering across segments.

13:46 At the same time, we carry on making structural progress in efficiency and productivity across the organization while maintaining top service quality, low levels of attrition, solid ESG foundation reflected in our strong ratings and corporate reputation results. Our midterm targets, as shown on the bottom of the slide, continue to anchor our execution. We are targeting top positions in returns, DDA balances in local currency, as well as commercial and consumer lending, a cost to income ratio below 40% and net promoter score above 73 and rank among the top three positions in corporate reputation. In summary, we have a strategy that is disciplined, consistent and resilient, and importantly, one that is already reflected in our operating and financial performance.

14:42 Please turn to Slide nine, which provides a summary of our first quarter twenty twenty six highlights. The list at the top of the slide shows our key financial metrics for the quarter, which we will walk through in detail in the next few slides. Total loans reached CLP 40,200,000,000,000, up 2.6% quarter over quarter. Operating revenues came in at CLP $749,000,000,000, with a net interest margin of 4.1% despite lower than normal inflation for the period, and net income was CLP $269,000,000,000, translating into a return on average equity of 18.2%. On the risk side, our cost of risk stood at 1.16%, with NPLs improving slightly to 1.6%, and our efficiency ratio was 38.4%.

15:34 Our common equity Tier one ratio remained solid at 13.3% even after paying dividends above the provisions amount. Some important advances I want to highlight this quarter are listed in the middle of this slide. On the commercial front, loan originations showed positive trends. Consumer loan originations were up 16% year over year, while SME installment loan originations grew 18% over the same period. These trends were supported by our digital initiatives and improved origination capabilities across channels. In digital banking, for instance, we launched new tools for personal banking and SMEs, while our FAN account base grew 22% year over year in March 2026, and digital current account openings expanded by 35% in the same period, reinforcing our position in digital onboarding and financial inclusion while diversifying our customer base through the attraction of new customers.

16:37 On AI adoption, we continued scaling capabilities through our Digital Skills Certification Academy and the application of advanced AI and specific use cases across the organization, which has allowed us to achieve priority productivity gains in several areas, including marketing campaigns, service quality, fraud compliance monitoring, and IT internal developments. These initiatives, together with a firm cost control discipline, delivered 0% real year on year cost growth, consistent with our long standing commitment to efficiency. And on sustainability, we're proud to report that MSCI upgraded our ESG ratings from BBB to A, and we were included in the S and P Global 2026 Sustainability Yearbook.

17:28 Finally, it's worth mentioning that our 2025 annual report was released in March aligned with international reporting standards. In terms of our guidance, we have made some adjustments to reflect updated inflation expectations and the last developments affecting the economic environment, given the information we have so far. Our guidance is based on our baseline scenario and does not incorporate potential impacts from additional geopolitical escalation or other nonrecurring events. Saying that, nominal loan growth is still expected to reach 7%. As a result of higher inflation, we have also increased our net interest margin guidance by 10 basis points to around 4.6%.

18:14 Cost of risk is expected to remain between 1.11.2%. In terms of our efficiency ratio, as measured as total operating expenses over total operating revenues, is expected to improve, reaching a level around 38% by December 2026. As a result, our return on average capital in reserve guidance has increased to a range of 21.5% to 22.5%, excluding nonrecurrent events. That said, it's important to acknowledge the risks surrounding this outlook. The escalation of the conflict in The Middle East remains the most significant source of uncertainty together with domestic factors such as the still weak recovery in the labor market and the ongoing discussion of proposed reforms by the government.

19:05 We will continue to monitor these developments closely and adjust our projections if necessary. Please turn to Slide 10 to discuss the evolution of our loan portfolio.

19:26 Total loans reached 40,200,000,000,000 as of March 2026, marking a 2.2% nominal increase year over year, while sequential growth reached 2.6% compared to December 2025, equivalent to annualized pace above 10%. The recovery reflects the effort we are making to take back growth, particularly in commercial lending, where we regained market share. From a product perspective, the dynamics across our loan book remain differentiated. Consumer loans grew 5.1% year on year, supported by both installment loans and credit card lending as household consumption continues to recover. On the other hand, residential mortgage loans rose by 3.2% year over year, slightly below the industry's growth of 4.4% as of March 2026.

20:19 Commercial loans, while only up 0.8% on an annual basis, grew 4.8 sequentially, a meaningful shift driven by the new corporate lending operations, particularly in public infrastructure and concessions as well as continued momentum in SME lending once FOGAPA amortizations are set aside. Additionally, we expect that the recently announced proposal to reduce taxes could add more dynamism to the economy, especially in those sectors related to domestic demand, such as construction. In terms of composition, retail banking continues to be the main component of our loan book, representing 66.1% of total loans. Within this segment, it's worth highlighting the progress we've made in aligning our digital capabilities more closely with the business.

21:12 The reorganization carried out two years ago merging our marketing division into our technology division, given the synergies stemming from the closely related functions in today's more digital world, is undoubtedly bearing fruit. Digital banking now serves as a central platform for customer acquisition, cross selling and post sale engagement. Our retail acquisition strategy addresses the full customer lifecycle through a segmented, data driven approach using advanced analytics and targeted digital campaigns to drive conversion and onboarding. The results speak for themselves: significantly stronger consumer and SME loan originations, both leveraging on these digital capabilities.

21:59 On the cross selling front, we're beginning to test the waters of our fan base using preapproved offers for micro loans, credit cards, and digital checking accounts delivered at low cost but with high conversion rates primarily through our Me Banco app and targeted digital communications across social media platforms. Also, AI driven behavior segmentation and risk models have increasingly allowed us to identify preapproved customers. During 2025 alone, we granted more than 24,000 microloans and fan credit cards through this approach. And in the first quarter of twenty twenty six, we continued to scale these initiatives, extending pre approved offers across products.

22:49 We are very proud that today, one third of our current account openings now originate from the fan customer base. Meanwhile, our SME portfolio expanded by 3.6% year over year, driven by a strong rebound in installment commercial originations for the segment, up 17.7% annually.

23:12 This trend highlights the healthy underlying demand and effectiveness of our strategy focused on supporting entrepreneurship. The Wholesale Banking segment was essentially flat year on year, but improved significantly on a sequential basis, expanding 9.4% quarter over quarter. This growth was driven by proactive commercial efforts that materialized in important operations related to infrastructure and concession projects, enabling us to recover market share in commercial loans. Turning to Slide 11. We continue to benefit from a loyal customer base, a low cost funding structure and a strong capital position, which remain among our main competitive advantages.

24:03 Starting on the left, demand deposits are our most important source of funding, representing 27.2% of our total liabilities, giving us a highly efficient funding base that remains structurally superior to the rest of the industry. Savings accounts and time deposits account also for another 27.2% of our total liabilities, while debt issued represents 19.8%. This structure, together with our solid capital base, provides us with a well diversified and cost efficient financing structure. On the top right, our demand deposit to loans ratio stands at 37.4%, once again the highest among peers.

24:48 This not only reflects our lower cost of funding, which supports superior net interest margins, but more importantly, reflects our strong brand, customer engagement and the trust we've built across all of our business segments.

25:02 Our Retail business accounts for 56.6% of total DDA balances and grew 6.6% year on year, supported by the ongoing expansion of our customer base and improved value offerings for current account holders. Wholesale, on the other hand, remained relatively flat year on year. The strong composition of retail deposits provides us with a meaningful funding stability and liquidity metrics over the medium term as retail tends to be less sensitive to market conditions than institutional or foreign currency balances while being a more stable source from the liquidity perspective. As a result, our demand deposit market share in local currency reached 20.7% as of March 2026, as shown on the bottom left, reinforcing our leading position among private banks.

25:56 Moving to the bottom right, our capital ratios remain the strongest among peers. As of March 2026, our CET1 ratio stood at 13.3% and our total capital ratio at 17%, both comfortably above fully loaded Basel III requirements. Looking ahead, there's an upside to our capital ratios. The CMF recently announced it will reinforce the process of validating internal models for credit risk, an option that has always been available under

26:27 the local Basel III framework but has not yet been pursued by the Chilean banking industry. For a bank of our size, this process will be implemented gradually, benefiting our CET1 ratio in the medium term. Additionally, it's worth noting that on 01/16/2026, the CMF removed the Pillar two capital charge of 0.13% previously assigned to us, bringing this requirement down to zero, a decision that reflects the regulator's positive assessment of our risk profile, governance and capital management practices. In summary, the combination of our industry leading funding base and robust capital position allows us to sustain one of the lowest funding cost structures in the banking industry, while positioning exceptionally well to continue growing profitably and navigating the current macroeconomic environment with confidence.

27:22 Please turn to Slide 12.

27:26 Total operating revenues reached $749,000,000,000 in the first quarter of twenty twenty six, flat compared to the fourth quarter of twenty twenty five and down from CLP $779,000,000,000 in the first quarter of twenty twenty five. As shown in the chart to the left, revenues have declined since the first quarter of twenty twenty five, largely reflecting lower inflation linked to income as inflation has normalized from previously elevated levels. While being significantly below both expectations and normalized levels in the first quarter of this year by reaching 0.3% for the whole quarter compared to the 1.2% recorded in the same period last year.

28:10 On a year on year basis, this decline in operating revenues was partially offset by higher net interest income driven by the expansion of our loan portfolio, demand deposits as well as stronger fee generation. In addition, other operating income increased by CLP 22,000,000,000, mainly related to tax reimbursements from previous fiscal years.

28:32 Our operating margin, as shown on the charts to the right, reached 6.1% on an annualized basis, fully in line with our pre pandemic average for the twenty fifteen to twenty nineteen period. Hence, even in a lower inflation environment, the strength of our business model, our funding advantage, our lending spreads and our fee generation capacity continues to deliver industry leading margins. More importantly, our net operating margin, which incorporates cost of risk, reached 5.2, above our historical average and above our peers, confirming that our profitability is not only resilient but also supported by sound asset quality. We will go into more detail of the composition of operating income, fee performance and risk dynamics in the following slides.

29:20 Please turn to Slide 13, where we'll take a closer look at the composition of our net financial income and net interest margin. Total net financial income reached CLP $542,000,000,000, as shown on the chart on the top right. This was composed of CLP $460,000,000,000 in customer financial income and CLP 82,000,000,000 in noncustomer income. On a year on year basis, customer financial income has remained essentially flat, while noncustomer income decreased 43.5%. On a sequential basis, throughout 2025 to 2026, customer and non customer income followed different dynamics. Customer income was supported by loan growth and steadily improved lending spreads, together with the expansion of demand deposits, balances mainly in the retail segment that enabled us to overcome a lower level of short term interest rates.

30:16 However, this was partially offset by a decline in non customer income, primarily coming from lower inflation, which more than offset the positive effect of lower interest rates on revenues coming from assets and liability management that benefited from repricing of short term funding sources. Moreover, the interest volatility observed in March 2026 contributed to a decrease in revenues coming from management of fixed income and derivative positions that also contributed to the decrease in non customer income.

30:48 It's important to mention that as of March 2026, our UF GAAP in the banking book stood at COP 8,900,000,000,000 as of March 2026, as shown on the bottom left. In terms of net interest margin, this came in at 4.1% this quarter, down from 5% a year ago, primarily due to the previously mentioned effects of lower inflation and the moderate decline in the contribution of demand deposits and cost of funds in the context of lower interest rates. Despite these factors, our net interest margin has remained above 4%, which speaks to the resilience of our core business even in a low inflation and normalizing interest rate environment. This advantage structural and reflects the strength of our funding base, our lending mix, and our ability to generate consistent spreads through market cycles.

31:43 While the first quarter net interest margin of 4.1% reflects lower inflation linked to income, our full year guidance of 4.6% is supported by higher expected inflation over the coming quarters.

31:58 Please turn to Slide 14 to review the performance of our net fee income this quarter. Fees made another solid contribution to our results, growing 6.9% year on year, supported mainly by transactional services and mutual funds. The 9.2% increase in transactional service fees was mainly driven by two factors: higher income from demand deposit accounts, supported by a 5.4% year on year increase in debit card transactions and the continued expansion of our current account base. In fact, over the last twelve months, we grew current accounts by 7.2%, with an important number of these being opened online. As discussed earlier, digital cross selling capabilities we have built allow us to deliver pre approved product offers for credit cards, loans, digital checking accounts, investment and insurance products at marginal cost compared to new customer acquisition, making fee generation increasingly efficient.

33:04 Mutual fund fees also remained an important contributor, posting a 6.7% year on year growth, mainly supported by an 8.7% increase in assets under management. In an environment of lower short term interest rates and higher volatility, our subsidiary continued to adapt its product offering to satisfying investor demand. Stock brokerage delivered a strong year on year growth as well driven by higher equity capital markets actively associated with a couple of important deals in the local market, while fee income from insurance brokerage benefited from increased cross selling of life credit related products and a more selective growth in higher premium products. Overall, this quarter's fee performance highlights the resilience of our diversified revenue base and our ability to deepen customer monetization by leveraging technology.

33:58 When compared to peers, this is evident in our fee margin over average interest earning assets, where we continue to post strong levels as shown on the right of this slide with a ratio of 1.4%. Supporting this, a Net Promoter Score ratio of 78%, which is the highest in the industry, which translates directly into deeper product penetration and stronger cross selling across our customer base. Please turn to Slide 15, where we'll review our credit loss expenses for the quarter. Expected credit loss expenses reached CLP 114,000,000,000 in the first quarter of twenty twenty six, up 26.6% year on year, as shown on the left hand chart.

34:45 In terms of cost of risk ratio for the period stood at 1.16%, 23 basis points above the 0.93% recorded a year earlier, but in line with our full year guidance of 1.1%

34:59 to 1.2%. On a sequential basis, however, cost of risk remained relatively flat. It's important to highlight some key movements that led to this annual rise. The first quarter of twenty twenty five represented a period of lower than normal risk expenses, particularly in the Retail Banking segment, which created a low comparison base that largely explains the increase. In the Wholesale Banking segment, asset quality improved, with credit loss expenses declining by approximately COP2 billion year on year, driven by strengthened risk profiles in the real estate, construction and transportation industries when compared to a year earlier. On the top right, you can see how our delinquency ratio compares to peers. Our NPL ratio improved 1.6% in March 2026, down from 1.7% in December 2025, maintaining a sizable gap versus our main competition.

36:00 On the bottom right, the improvement in asset quality is broad based across all segments. Commercial loan NPLs stood at 1.6%, mortgages at 1.5% and consumer loans at 1.9%, all showing sequential improvements. This improvement reflects our prudent risk policies and the quality of our customer base, supported by disciplined loan growth across cycles and a more supportive macroeconomic environment. Please turn to Slide 16. This quarter, expenses totaled $288,000,000,000, remaining flat in real terms year on year, reflected continued cost discipline and consistent execution of our productivity and efficiency agenda.

36:47 This is the result of a multiyear transformation effort that combines structural cost control with targeted technological investments, organizational simplification and ongoing optimization of our branch network and headcount. To put this into perspective, since 2018, we have reduced our branch network by 45 and our headcount by 19% while continuously improving service quality. As a result, productivity continued to improve, with loans per employees reaching billion, up 3% year on year, and fees to expenses ratio expanding by two fifty one basis points to 58.2%. These gains were mainly driven by continuous innovation in digital capabilities and organizational initiatives, including virtual servicing models, which now cover around 20% of the retail clients digital enhancements that supported 16% year on year increase in consumer loan originations and at the same time, disciplined cost execution led to a 0.4% annual decline in personnel expenses and a 4% annual reduction in the branch network from two twenty four to two fifteen locations.

38:05 Breaking this down, during first quarter, expenses increased 2.5% year on year in nominal terms. This was mainly driven by an increase in administrative expenses associated with higher IT services costs, including cloud software licensing and IT support, in line with our digital strategy and higher marketing expenses related to the launch of new services at Banchi Lipagos. Personnel expenses declined slightly by 0.4% year on year, driven by a reduction in severance payments, partially offset by higher staff benefits reflecting the cumulative effect of inflation on salaries. The chart on the bottom right highlights our consistent efficiency track record, with levels well below pre pandemic figures, reaching 38.4% in the first quarter of twenty twenty six, seven sixty three basis points below the industry average of 46.1%.

39:00 Looking ahead, we are confident that disciplined cost management, continued productivity gains and the effective use of technology will allow us to sustain strong efficiency levels. Accordingly, under our revised baseline scenario, we expect to reach an efficiency ratio of around 38% in 2026 and remain below 40% over the medium term with our cost base fully aligned with our strategic priorities. Please turn to Slide 17, which brings together everything we've discussed so far: Robust profitability driven by the resilience of our core business. Net income reached COP269 billion in the first quarter of twenty twenty six, slightly above the fourth quarter of twenty twenty five despite lower inflation, reflecting the stability and the quality of our core business model.

39:55 Our return metrics remain clearly differentiated, as you can see on the right hand side. Return on average assets stood at 2% and return on average equity at around 18% as of March 2026. While these levels are below the peak seen during the periods of higher inflation, they remain comfortably above the industry. This has been another quarter of solid results that has been supported by a strong asset and liability mix, solid fee generation, prudent risk management and disciplined cost control, all of which continue to translate into industry leading returns. Please turn to Slide 18. Before taking your questions, I would like to highlight a few key takeaways from this presentation. On the macro front, Chile's economy continues to perform well, with GDP growth expected to come in slightly above its potential rate at around 2.1% in 2026, driven primarily from a recovery in private investment.

40:54 That said, higher expected inflation in the near term will likely delay the pace of interest rate cuts. Despite global uncertainties, Chile's strong institutions and solid fundamentals, along with market friendly reform proposals, should support a favorable environment for the economy and banking sector. On profitability, our core business continues to drive results. Net income reached COP269 billion this quarter with a return on average equity of 18%, a strong outcome in a low inflation environment and proof of our of the quality and consistency of our recurring income sources. On efficiency and productivity, expenses continue to be flat in real terms, demonstrating the tangible results of the efficiency and productivity initiatives that we have implemented over recent years.

41:46 Our efficiency ratio reached 38.4% this quarter, well below industry, and remain confident in sustaining these levels going forward. And finally, on capital, we remain the best capitalized bank amongst our peers, which gives us flexibility to fund growth, maintain attractive dividends, and navigate uncertainty from a position of strength. We remain confident in our ability to continue positioning Banco de Chile as the most profitable and resilient financial institution in the Chilean banking industry, supported by a disciplined and consistent strategy, the strongest customer base, superior asset quality and a robust capital position that will allow us to capture opportunities as the economy gains momentum. Thank you. And if you have any questions, we'd be happy to answer them.

42:37 Thank you. So we'll now move to the question and answer section. If you would like to ask a question, please press 2 on your phone and wait to be prompted. If you are dialed in by the web, you can also ask a voice question. We'll just wait a moment or two for the questions to come in. Okay. We have our first voice question from Diego Marquez from JPMorgan. Please go ahead. Your line is now open. Hi, Rodrigo, Daniel, Pablo. Thank you for taking your questions. Just a quick one regarding higher inflation. So you slightly increased your ROE guidance but kept your loan guidance unchanged.

43:26 So just wanted to see if we could see any further upside to loan growth, given high inflation Mhmm. And maintaining your 7% guidance, and in which segments we could see the most upside. And then an additional question regarding, potentially higher ROE, saying given inflation above this 21.5% to 22.5% that you guided. Thank you. Hi, Diego. Thank you very much for for this question. This is Rodrigo Arena. In terms of inflation, I think that it's very important to keep in mind that we are facing a supply shock. Right? In a supply shock, you have a temporary rise in inflation.

44:14 However, for the next quarter, it's likely to have a normalization as well as the situation in the in the rest of the world. The geopolitical conflict tends to be more normalized. Right? So that's why we increased our CPA forecast for this year from 3% to 4.3%. I mean, what I'm trying to say is that we're gonna have high inflation in the second quarter of this year. Probably, the inflation the total inflation in the second quarter will be between 2.7%, 2.8%. But for the next quarter, we are gonna have a much lower inflation, achieving total inflation in the year of around 4.3%.

45:00 For the next year, we can rule out an inflation rate of around 3%, and, also, we can rule out an inflation slightly below the 3% because the the supply shock tend to generate a more temporary impact of inflation. So that's why our adjustment for the CPA forecast for this year was only a 150 basis points, even though the very important right was in place for the second quarter of this year. So Pablo will apply on that answer. So in terms of loan growth, in in nominal terms, we're seeing similar levels as we mentioned in the first quarter sorry, the fourth quarter of last year in that call. But in terms of real growth, it's just slightly down because of everything that you know that is happening in the global economy and how that's affecting all the countries, and and Chile since the Sonoma economy is also affected. So in nominal terms, we're seeing a similar level of loan growth. In real terms, it's slightly below, and this should be affecting overall the loan portfolio, but again, we're not seeing that change in the non loan figures. In terms of ROE, what we said in the guidance was around 21% to 22%, and that level of ROE is in line with

46:31 this higher expectation of slightly higher inflation for the year end. Obviously, these numbers can change depending on how the impacts of this more difficult situation is is arising in in terms of the the global trends and how that affects our our bottom line. So there there could be changes based on on new news from these events. Okay. Great. Thank you, Rodrigo. You're welcome. You're welcome. Thank you. So we'll now move to the next question that comes from Neha Agarwala from HSBC.

47:20 Please go ahead. Your line is now open. Hi. Thank you for taking my question. Could we assume in a bit on your NIM sensitivity? We understand you expect higher NIMs on the back of higher inflation, but could you reinforce what your sensitivity is both to inflation and rates as there's some discussions about maybe potential rate hikes coming through? Also, do you have any calculations regarding what could be the potential improvement in the capital ratios with the changes that you you mentioned, and could that lead to maybe an extraordinary payout of dividends or an increase in the in the dividends in the near term? Thank you so much. Hi, Neha. This is Rodrigo Aravena. Thank you very much for for this question.

48:18 In our baseline scenario, we're not expecting changes in the interest rate in the from Central Bank because we're expecting only a temporary rise in the in the total inflation in in Chile. It's important to remember that in Chile, the monetary policy rule is based on an inflation rate of 3% over the next year. So given that, we're expecting only a temporary impact of inflation, and we maintain our forecast for the inflation rate of 3% over the next two years. And, also, considering that the current inflation rate sorry, interest rate, which is 4.5%, is is not expansionary.

49:03 The central bank has room to continue waiting for the new development and inflation, so there's room to continue maintaining the interest rate at the current level. Obviously, if the replacement rate were higher in the case that, for example, the oil price continue hovering around 100 per barrel, for example, in that case, we would have an an interest rate hike in the in the future, but so far, it's not our our base scenario. And adding to that, in terms of changes of the overnight rate or interest rates, we don't have so many floating rates in the bank, so it's not an immediate impact. But in terms of what would move the quickest is their time deposits, which come due mostly within three months or so.

49:59 In terms of the sensitivity to to inflation, it's around 20 basis points of net interest margin, so we should see that. But more importantly, in terms of for the year, as Rodrigo mentioned, our baseline scenario is moving from a level of inflation of 3% to 4%. So it's a slight variation versus the the prior year. So this should this is also included in our numbers where we increased the net interest margins from 4.5 to around 4.6. And in terms of the capital ratio changes, I'll pass that to to Daniel Galarce.

50:44 Thank you, Pablo. Hi, Micha. This is Daniel Galarce. Well, regarding your questions, certainly, the use of internal models for for banks with good asset quality such as Banco De Chile would result in in in in benefits in term of capital freeing up. However, there is still some way to go on this matter. I mean, we expect more specific guidelines by the CMF in terms of the application process, which is basically promised for for 2027 by the CMF. And, also, probably clarification of certain technical issues and more flexibility in some topics could would make the process also easier in the in the future. However, this is a topic, we we are working on and as we pursue to be one of the first in the queue for for the application validation process.

51:38 Although it's it's still too early to define the expected impact, of the use of internal noise on our capital ratios, we certainly expect to be to capture some benefits considering the regulation, but there is still a lot of pieces of information that need to be to be clarified. Understood. Thank you so much. Thanks. Thank you. Thank you very much. Before I move to the next question, just a quick reminder. If you'd like to ask a voice question and you're connected through the phone, please press 2 on your phone keypad and wait for your name to be prompted. If you are connected via the web, you can also request to ask a voice question.

52:27 Our next question comes from Daniel Mora from Credit Capital. I have just one question. Considering that you expect that inflation should be between 2.7%, 2.8% in the second quarter, how high could be the impact of on NIM and also on ROE in that particular quarter? Thank you so much. I I think it's very important, as I mentioned, that in terms of an analysis by quarter, it's it's challenging to analyze since it's very volatile, the the levels of inflation during the year. So as I mentioned, for net interest margin, the the change is around 20 basis points. So with that, you'd have an effect of, I don't know, around 50 basis points higher in net interest margins, and we'd have an benefit in in in the bottom line. But it's more important that for the full year, it's not so relevant.

53:41 For the full year, we have a a change versus 2025 of only 1% in terms of inflation. So this is a quick spike up, but it comes down very quickly to reach a level of inflation of 4% versus 3%. So that's the reason why we increased the level of ROEs for for the year end, also because of this higher expectations of inflation, not including any other onetime events that could occur during the the year. Sorry. Yeah. Just to clarify, the estimate of, 2.5, 2.8% of inflation is is a estimate of U F U. S. Variation of the work rather than the CPI of that period. Just to clarify.

54:37 Perfect. Thank you so much. Very clear. And thank you for the clarification, Jess. Thanks. You're welcome. Okay. Thank you. So just the final reminder for any remaining questions. If you're connected via the phone, please press 2 on your phone keypad and wait for your name to be prompted. Our web participants can also request to ask a voice question. I'll just give a moment or so for any additional questions to come in. Okay.

55:28 Okay. It looks like we have no further questions, so I will pass the line back to the team for their closing remarks. Okay. Well, thanks for listening to our first quarter results. We look forward to speaking with you again regarding our second quarter results. Bye. Thank you. This concludes the call for today. We are now closing all the lines. Thank you, and goodbye.