Earnings call transcript: Banco de Chile Q1 2025 sees earnings beat but stock dips

Banco de Chile reported its first-quarter 2025 earnings with an EPS of 3.26, surpassing the forecast of 2.83. Despite this earnings beat, the company’s stock dropped 3.14% in pre-market trading, reflecting investor concerns over revenue shortfalls and future guidance. According to InvestingPro data, the bank maintains a healthy P/E ratio of 11.83 and offers a substantial dividend yield of 6.89%, having maintained dividend payments for 28 consecutive years.

Key Takeaways

• Banco de Chile’s EPS exceeded expectations at 3.26, compared to the forecast of 2.83.
• Revenue fell short of forecasts, reaching 779.22 billion CLP against an expected 797.9 billion CLP.
• Stock price decreased by 3.14% pre-market, closing at 139 from a previous 143.5.
• The bank introduced new digital products and streamlined operations, enhancing efficiency.
• Chile’s economic growth and inflation projections remain stable, influencing the bank’s outlook.

Company Performance

Banco de Chile demonstrated strong profitability in Q1 2025, with net income reaching MXN 3.29 billion and a return on average equity of 23.3%. The bank maintained a leading position in demand deposits and ranked second in commercial and consumer lending. Despite these strengths, the bank’s revenue fell short of expectations, which may have contributed to the negative market reaction.

Financial Highlights

• Revenue: 779 billion CLP (below forecast)
• Earnings per share: 3.26 (above forecast)
• Net interest margin: 5%
• Cost to income ratio: 36.1%

Earnings vs. Forecast

Banco de Chile’s EPS of 3.26 exceeded the forecast of 2.83 by 15.2%, marking a positive earnings surprise. However, the bank’s revenue of 779.22 billion CLP missed the forecast of 797.9 billion CLP by 2.3%. This mixed performance may have tempered investor enthusiasm.

Market Reaction

Despite the earnings beat, Banco de Chile’s stock fell by 3.14% in pre-market trading, closing at 139. This decline reflects concerns over the revenue miss and cautious future guidance. The stock remains within its 52-week range, with a high of 146.41 and a low of 105.01.

Outlook & Guidance

Banco de Chile anticipates loan growth in the high single digits and aims to remain a top performer in return on equity. The bank expects interest rates to stabilize around 4.25% by year-end, with inflation converging to 3% by 2026. These projections align with Chile’s expected GDP growth of 2% in 2025.

Executive Commentary

Rodrigo Arvena, Chief Economist, emphasized the bank’s commitment to supporting Chile’s growth, stating, "We aim to support Chile’s growth and its citizens and businesses." Pablo Mejia, Head of Investor Relations, highlighted the bank’s strategic focus, saying, "We’re executing a strategy that is ambitious and disciplined."

Risks and Challenges

• Global economic uncertainties could impact Chile’s trade-dependent economy.
• Potential interest rate fluctuations may affect lending margins.
• Competition in the digital banking sector continues to intensify.
• Inflationary pressures, though declining, remain a concern.
• Regulatory changes could pose operational challenges.

Q&A

During the earnings call, analysts inquired about the bank’s capital deployment strategy and additional provisions approach. The bank addressed margin expectations and macroeconomic concerns, including global trade tensions, which remain a focal point for investors.

Full transcript - Banco De Chile (SN) (CHILE) Q1 2025:

Conference Call Moderator: Good afternoon, and welcome to Banco de Chile’s First Quarter twenty twenty five 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 Mr. Rodrigo Arvena, Chief Economist and Institutional Relations Officer Mr. Pablo Mejia, Head of Investor Relations and Daniel Galarte, Head of Financial Control and Capital.

Before we begin, I would like to remind you that this call is being recorded, and information discussed today may include forward looking statements regarding the company’s financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company’s press release regarding forward looking statements. I’ll now turn the call over to Mr. Rodrigo Aravera.

Please go ahead.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Good afternoon, everyone. Thank you very much for joining this conference call. As usual, today we will review the main results and advances in our three projects during the first quarter of this year. Once again, our bank has confirmed its strong position in the trade banking industry, reaffirming its leadership in different areas. In the quarter, the net income was MXN $3.29 surpassing our peers and achieving an ROAE of 23%.

As we will see later in this conference call, these outstanding results were explained by the strong margins, improved asset quality and enhanced efficiency levels. This performance becomes particularly important due to increasing uncertainty of the macroeconomic environment due to the revised foreign trade approach adopted by the US administration, which could likely reduce the global and even local economic growth in the future. Therefore, our solid fundamentals, such as quality, large amount of additional provisions, and a strong capital base are undoubtedly aspects that generate even greater differentiation for us, not only in Chile, but also at the regional level. Before discussing in detail the financial results of our bank, I’d like to share with you our analysis of the current market environment. Please go to Slide number three.

The Chilean economy has shown a recovery in recent quarters. As can be seen in the graph on the left of this slide, the city posted an important increase in the February with a peak in the fourth quarter when the economy grew by 4%. As a result, the country achieved an above expectation expansion of 2.6% for the year. The breakdown of the figure, as seen in the top right chart, shows that domestic demand, reflected in the strong rise in the commerce sector, was one of the main drivers of greater dynamism. Different factors contributed to this, such as the laggard effect of interest rate cuts, the recovery of wage employment, and the temporary effect of foreign purchases in Chile.

In addition to this figure, several leading indicators such as imports of capital and consumer goods shown in the bottom right chart, are consistent with the system of favorable expectation with the domestic demand, at least in the short term, if customer risks are set aside. Please go to slide four to analyze the evolution of inflation and interest rate. Inflation has remained above the Central Bank target of 3% since late twenty twenty, as shown in the graph on the left. In March, annual inflation was 4.9%, a figure that although higher than the 4.5% recorded at the end of last year and the 3.7% seen a year ago, it’s important to consider the figure posted this year was affected by some temporary factors. Among them, the rise in energy prices, which posted a 14.2% year on year increase, which according to Central Bank Internet has contributed almost a 30 basis points to annual inflation.

Additionally, inflation of trade will go went up by 5.2% during the year, inflated by the weakening of the 21 peso in 2024. Sequentially, inflation rose by 2% in the first quarter of the year. However, as shown in the chart, the CPI variation, excluding volatile, is below the change in the headline measure, reflecting the existence of more moderate pressures at the core level. This reassumes the fact that inflation has been driven by specific factors, particularly over the last quarters. Although the recent evolution of inflation has led the Central Bank to keep the the reference rate at 5% in the first quarter, it’s important to consider the plan overnight rate has dropped the most globally from the peak of 11.25% in 2023 to the current figure, which, however, remains above neutral levels between 44.5%.

The path followed by the reference rate has resulted in a steepened yield curve, as shown in the bottom right chart, measured as the difference between the ten year sovereign rate and the overnight rate in client pesos, which should have a positive effect on banking results as banking liabilities typically will price faster than assets due to the duration gap. In this regard, the yield curve is expected to become more positively slowed as the monetary policy rate converts to neutral levels by the end of this year. Notwithstanding the positive trends seen in the current economy over the last quarter, the recent abrupt change in global trade condition is something we must take into consideration, especially given the high integration of the Canadian economy with the rest of the world. However, despite the external risk, Chile has some differentiating strength that could partially mitigate the potential impact of constrained global trade. Please go to slide number five to analyze them.

Although Chile is one of the most open economies in the region, it has a well diversified export basket in terms of destination. As can be seen in the top right chart, Chile has significant integration with China, a country that represents around 40% of the country’s total shipments. If other Asian countries are considered, this region represents, in total, around 60% of Chilean exports. The US economy, in turn, represents 16% of Chile’s total exports. It’s also important to mention extensions for some relevant Chilean products, such as copper as well as lithium and good derivatives, as shown in the right graph.

Thus, the effective tariff rate on Chilean export is lower than the 10% rate recently imposed by the US administration. Another aspect to consider is the room to implement countercyclical measures in event of a recession. Along with the normalization of inflation, which has allowed interest rate cuts by the Central Bank, still has also greater capacity than other countries in the region to implement fiscal policy measures based on lower debt levels and interest rate burden as shown in the bottom right chart. The system of better fundamentals has been recognized globally. As such, the value of risky financial assets has been less affected until in Chile when compared to other comparable countries.

Likewise, it’s worth highlighting, for instance, that the value of the peso has been less affected than other currency at the bottom left chart shows. Now I’d like to present our best scenario for the year 02/2025. Please go to slide six. We expect GDP to expand by 2% in 2025. This figure has several elements to consider.

First, it represents less than anything done in 02/2024, partly due to the expected slowdown in the global economy and further deceleration of some of Chile’s trading partners. The recovery in domestic demand would be the driver for GDP growth this year, which would offset a slowdown in exports. This situation would result in a slight decline in settlement inflation that would end up the year below 4%. However, the forecast assumes neither a significant rebound in external inflation nor extended rate depreciation for the rest of the year. Under these circumstances, the Central Bank would reduce the interest rate to a neutral level of around 4.25%.

Finally, it’s important to take into consideration the higher uncertainty we face as well as the downside risk in terms of growth, mainly due to global factors. Locally, a source of attention will be the coming presidential and parliamentary elections in November. Before analyzing the bank’s results in detail, I’d like to share a brief analysis of trends in the banking industry. Please go to slide seven to discuss it. This quarter, we turned on average equity for the Chilean banking system was 16.5 percent, which is slightly higher than both previous quarter and the last year as is pie in the top left graph.

This consistent profitability can be attributed to several factors, including a practical cost control, diversified income stream and stabilizing market conditions. Despite global economic hurdles, financial institutions have demonstrated resilience and adaptability in a dynamic landscape. Furthermore, technological and digital advancements are optimizing operations, cutting costs, and enhancing customer experience, thereby possibly impacting our financial performance. Regarding business volumes, as shown by the chart on the right, surely improved economic performance has not resulted in significant loan growth. Loans increased by 2.6% year on year.

Mortgage were the primary contributor to this growth, rising by 6.3% year on year, while consumer loans increased by 5.1% during the same period. Commercially, commercial loans did not experience any growth in nominal terms. With growth in commercial loans has resulted in a change in the portfolio composition compared to pre pandemic levels. Currently, as shown in the chart on the bottom left, more or constitute 56% of total loans, up from 29% in 2019. During the same period, commercial loans have reduced from 56 to 52%, and the consumer portfolio has decreased from 15 to 12%.

This shift in mix due to weak demand for consumer and commercial loans led banks to maintain lower risk portfolio, preventing a significant rise in NPLs as shown in the chart of the bottom right. Next, Paulo will share information regarding Banco de Chile developments and financial results. Thank you, Rodrigo. Let’s begin by turning to slide number nine, which provides a comprehensive view of our strategic framework and midterm targets. Together, they define a road map for sustainable value creation.

On the left side of this slide is a strategy structured around three key components, our strategic plan, our strategic pillars, and our purpose. Our strategic plan is built on six areas aimed at transforming the way we operate and serve our customers. These initiatives are interconnected and designed to make us more agile, competitive and responsive to the evolving needs of our clients. Supporting this plan are our strategic pillars, which guide us on how we execute our strategy with efficiency and productivity through collaboration and always with a customer first mindset. These pillars ensure that our operations, culture and decision making processes remain aligned with performance and innovation.

And finally, at the center of our strategic plan and pillars is our purpose. We aim to support Chile’s growth and its citizens and businesses, enhancing our competitive advantages through long term trust and strong relationships. On the right side of the slide are our midterm targets, show our strategic goals and commitment to measurable results. Return on average capital and reserves, we aim to be the leading bank among peers. Cost to income ratio, we’re targeting a ratio below 42%, and we’re currently operating at 36.1% outperforming expectations.

This result not only is from a strong revenue generation, but also disciplined cost management and strong operating income. Market share. Our objective is clear, to lead in commercial loans, consumer loans and demand deposits in local currency. Currently, we are the leaders in demand deposits and hold second place in both commercial and consumer lending. I’d like to emphasize that we aim to reach these targets by growing responsibly in terms of credit risk.

Net Promoter Score, we’ve exceeded our target of 73%, reaching 75.8 in March 2025. This reflects sustained efforts in improving customer experience through employee training, digital enhancements and better service models. Corporate reputation. According to 2024 MEDCO ranking, we’ve reached top two amongst all companies in Chile, including banks surpassing our goal of being in the top three. This recognition is driven by our broad engagement and social impact initiatives, including education, entrepreneurship and volunteerism, along with our commitment to ethical and responsible business practices.

In summary, we’re executing a strategy that is ambitious and disciplined with a focus on efficiency, customer satisfaction and sustainability. Our progress is measurable, our foundations are strong, and we’re confident in our ability to generate long term value for our stakeholders. Please move to Slide 10, where we’ll go over our key business advances in the first quarter of twenty twenty five. We have continued advancing and initiatives to drive productivity across the entire organization. Functions from our subsidiaries are being centralized to the bank and some organizational structure is being continually refined.

Additionally, we have sustained our efforts to streamline technology expenses in areas including data centers, cloud and telecommunications. These measures are expected not only to optimize costs, but also to enhance our technological capabilities and support our long term growth objectives. On the digital transformation front, we made advances with this many advances this quarter. First, we’re proud to be strategically using AI tools. In fact, we’ve made available AI Copilot chat across the entire organization.

This important step forward in using AI is making our workplace more productive, secure and insightful. We also introduced new products and enhanced existing ones. To name a few, we launched a new credit card and micro lending product for fan customers as well as making changes to the digital student plan to reach a broader university student audience. These and other advances have driven the expansion of our digital accounts, achieving a 21% year on year growth in our planned customer base. It’s also important to note that this has not only expanded our presence in these segments, but it has also been relevant for increasing our financial inclusion in Banco de Chile.

In addition to our progress in the fan product, we advanced in improving other digital initiatives that are focused on internal processes. These changes have resulted in boosting our productivity by a staggering 35% year on year in current account originations. In line with the commercial initiatives, we launched new accounts for companies of 1 yen and British pound. These accounts offer diverse functionalities, including foreign exchange transactions, financing options for customers operating internationally. We also upgrade our personal banking credit products by introducing new preapproved credit lines and credit card limits, resulting in a 25% increase in the average number of these operations.

New installment options were released for credit card balances, providing customers with more flexibility to pay their debt. Our constant innovation and commercial initiatives enabled us to offer customers a wider range of product options, strengthening our relationship and enhancing our ability to meet their financial needs. In terms of ESG reporting, this quarter, we published our 2024 annual report, which covers our financial and sustainability performance and marked significant advances in meeting local and international standards, such as FASB and GRIP. All of these initiatives position us to maintain our leadership in the banking industry and prepare us confidently to navigate future opportunities and challenges. Please turn to Slide 12 to begin a discussion on our results.

We started 2025 with solid results of hundred and 29,000,000,000 pesos this quarter, equal to a return on average equity of 23.3% as shown on the chart to the left. When compared to our peers, we outranked all of them in both market share and return on average assets as shown on the chart to the right. Specifically, in market share, we achieved a 22.8% participation in net income and in return on average assets. We reached 2.5%. Our robust financial performance underscores our enduring customer centric approach and commitment to establishing a sustainable bank as evidenced by consistent increases in customer revenue, risk management and positive advances in cost control.

In line with this expansion, our aspiration is to be the industry leader in profitability. Let’s take a closer look at our operating income performance on the next slide 13. We continue to demonstrate the strongest operating revenues in the industry, thanks to our superior business model and its clear resilience through market cycles. On the chart on the left, we see a consistent operating revenue growth quarter over quarter despite subdued business dynamism by totaling 779,000,000,000 pesos in the February. This was composed of strong customer income amounting to CLP $617,000,000,000, up 4.3% year on year and noncustomer income that reached CLP 162,000,000,000 below the CLP one hundred and 80 eight billion recorded a year earlier.

The decrease in noncustomer income was mainly caused by the maturity of FDIC funding from the Central Bank in the first half of twenty twenty five, which explains CLP 75,000,000,000 in higher revenues in the first quarter of twenty twenty four when compared to the same period of 2025. This was partly offset by higher revenues from directional inflation index positions. This decline was partially offset by an annual rise of 20,000,000,000 pesos in the contribution of our structural US index net asset exposure that hedges our equity against inflation due to higher inflation that increased from 0.8% in the first quarter of twenty four to 1.2% in the first quarter of twenty five as well as the larger US GAAP on the balance sheet. In terms of customer revenue, growth was driven by income from loans and fees that were up 7.214% year on year, respectively. The consumer loan book contribute to the most of the loan revenue, which increased by adding 9,800,000,000.0 pesos due to higher lending spreads and 3.5% annual rise in average loan balances.

The the remaining increase was fostered by improved lending spreads in both the commercial book and the residential mortgages, which resulted in further income by 4,600,000,000.0 pesos and 2,400,000,000.0 pesos, respectively. It’s also worth noting that most of the growth in the commercial loan book was from SME loans and that lending spreads in this business unit are gradually returning to normal as Fogafis loans continue to mature. Likewise, the SME banking unit managed to grow above 8% year on year in other than Fogape loans. As a result, our net interest margin reached 5% this quarter, significantly outperforming our peers. In turn, the increase in fee income was primarily conducted by transactional services and mutual fund management.

Transactional services experienced a rise of 12,000,000,000 pesos, partly driven by favorable exchange rate impact on fee expenses related to our credit card loyalty program due to the Chilean peso appreciating 4% against the US dollar in the February compared to depreciation of 12.3% in the February. The remaining increase was due to a rise in credit and debit card transactions of 9.77.8%, respectively. Fees from mutual funds and investment funds management grew by 22.8% year on year. This growth was driven by an 18.4 increase in average balances of assets under management. And furthermore, stock brokerage and investment banking also posted increases in the year on year performance, fueled by a rebound in the local stock market over the last month and particularly M and A transactions carried out in the market in the local market.

In terms of our fee margin over average interest earning assets, we are posting strong levels, as shown on the right side of the slide with a 1.4% ratio as of the first quarter of ’twenty five, also above our peers. Our remarkable operating revenue performance is responsible for an impressive operating margin of 6.7% this quarter. This achievement is proof of our consistent business strategy and our ability to deliver enhanced value offerings to our premium customer base over time in both lending and non lending products. As a result, we have established a solid track record in customer income regardless of economic conditions. Please turn to Slide 14 to take a deeper look at our loan portfolio performance for the first quarter of twenty twenty five.

As shown on the left, total loans reached 39,000,000,000,000, marking a 1.1 increase compared to the previous quarter and a 3.2% increase year over year. We expect this pace of growth to transition in the coming quarters to more normalized levels in line with the better economic figures that we are seeing. Generally, there’s a lag of a few quarters when we start to see positive figures in the economy that translate into loan growth. In this regard, although loan growth multipliers to GDP will probably remain below average levels seen in the past decade, we believe the rebound foreseen in private investment this year and enhanced household consumption should drive more dynamism in commercial and consumer lending in coming quarters. In terms of composition, personal banking to commercial loan mix continues increasing.

The retail portfolio drove loan growth. This book is comprised of individuals and SMEs representing 65% of total loans expanded 5.6% while wholesale lending remained basically flat year on year. Specifically, mortgage loans led the rise up 8.1% year on year, reaching CLP 13,500,000,000,000.0. Despite higher than pre COVID interest rates, the segment has proven resilient with originations for new loans rising 12% year on year. Industry wide, residential mortgage loans grew 6.3% year on year, allowing us to post market share gains rising from 15.3% to 15.6%.

Consumer loans increased by 3.9% year on year to CLP 5,500,000,000,000.0. Although this growth is below historical level due to high interest rates and persistent unemployment, a gradual improvement is anticipated if the trade war does not escalate and affects the local economy. Commercial loan SMEs reached 5,200,000,000,000.0, up 3.7% year on year. This expansion has been negatively impacted by significant growth in prior periods in Fogate government guaranteed loans that are amortized at a high rate, offset by Fogate loans that have expanded a rate of 8.2% year on year. On the other hand, commercial loans in the Wholesale Banking segment remained flat year on year.

Originations in this segment offset the negative impact of exchange rates on foreign trade loans and lower demand for this product. When setting aside the potential effects of the trade war on both global and the local economy, we expect this segment to grow throughout the years on the grounds of expected reactivation in the private investment regardless of the lag between economic figures and demand for loans. Please turn to Slide 15 to discuss our comparative balance structure. As depicted in the charts on the top left, our assets and liability structure is solid. Our business strategy is primarily focused on commercial banking with loans constituting 73% of total assets as of March 2025, while financial instruments represent only 10%.

Also, I want to highlight that our held to maturity portfolio represents less than 2% of total assets. This is relevant because during the pandemic, we and most of our peers increased the level of these financial instruments, which generally yield significantly lower than the current market rate, thus affecting net interest margins. On the liability side, deposits are the main source of funding, representing 56% of our assets. Within deposits, time deposits are the most relevant financing source on our balance sheet, followed by demand deposits, one of the most important competitive advantages that we have. As you can see on the chart to the right, zero interest bearing demand deposits funded 37% of our loans, significantly higher ratio than our peers and one of the drivers of our net interest margin advantage.

Also shown on the table on the bottom on the bottom left, we have a high level of liquidity largely exceeds the limits set by the regulators. Our liquidity coverage ratio reached 186% as of March 2025, ’80 ’6 percentage points higher than the regulatory limit, and the net stable funding ratio reached a level of 119%, twenty nine percentage points higher than the limit during the same period. In addition, it’s worth noting that our UF asset gap was CLP 9,700,000,000,000 by the March 2025, meaning their sensitivity to 1% inflation is about 97,000,000,000 pesos in net interest income. It’s important to mention that this gap is composed of two parts. First, we have a U.

S. Position that’s structural, which is related to hedge of capital gains in places. Second, we have a directional UF positions that are managed by treasury to profit from differentiate from the differential between the Chilean peso and UF rates in the short term. Given recent inflation trends, which have remained above the Central Bank’s target range and the treasury’s expectations on how inflation will evolve going forward, we have temporarily increased our U. Position overall.

The income obtained from the strategy has clearly offset the risk taken, which is well controlled by the solid corporate governance we have in these matters. Please turn to the next slide, 16 to discuss our sound capital base. Banco de Chile is the best capitalized bank among its peers in the industry. As of March 2025, our Basel III ratio stood at 17.4%, significantly surpassing our fully loaded requirements of 12.4% as indicated on the accompanying table. Our CET1 ratio shows a decline this quarter due to effective payout in dividends that exceeded the 60% amount provisioned as of 12/31/2024, following our shareholders’ decision to distribute 100% of the distributable earnings from 2024.

Despite this reduction, our CET1 trend over the past few years has significantly outperformed both our main competitors as illustrated in the chart on the bottom left and remained well above the regulatory limit. Based on these strong capital levels, we’re comfortably meeting our phase in Basel III requirements while remaining confident in addressing the final steps in Basel III implementation. More importantly, given this scenario, we possess the necessary capital to pursue growth opportunities should market conditions permit. Please turn to Slide 17. In the first quarter of this year, expected credit losses reached 90,000,000,000, 20 percent lower than the same period last year and 13% lower when compared to the fourth quarter of twenty twenty four.

Cost of risk for the period dropped to only 0.93%, below our long term expectations. As discussed in previous earnings calls, delinquencies have shown signs of stabilization as illustrated in the accompanying charts. The top right chart demonstrates our performance relative to our peers. Notably, we recorded nonperforming loans of only 1.5 this quarter, which is significantly lower than that of our peers. The bottom right chart provides a breakdown of this figure indicating that NPLs have started to stabilize by products and have even improved for consumer loans.

We believe that if the economy can economy continues to strengthen and uncertainties decrease, we could observe a moderate improvement in NPLs across products. On the chart on the bottom left indicates that our loan portfolio has a coverage ratio of 2.6 times, including additional provisions amounting to CLP $631,000,000,000, which is the highest amount in the local banking industry while positioning us favorably for managing unexpected credit risk deterioration. These additional provisions are particularly valuable in uncertain times as they provide a robust buffer against potential negative economic scenarios that could arise in the global economy. It’s also important to note that the CMS standardized provisioning model for consumer loans went into effect in January 2025. To mitigate the 69,000,000,000 billion peso expected impact on risk expenses for 2025, we released additional provisions as anticipated in previous calls.

Please turn to Slide 18. This quarter, expenses amounted to CLP $281,000,000,000, 1 percent lower than the same period last year and 7% less than the February. This decrease is even more significant when adjusted for inflation as most cost items are linked to CPI variation, which reached 4.9% over the past twelve months. These figures reaffirm our commitment to productivity and efficiency, which is supported by a digital strategy that has demonstrated to be effective and strict cost control initiatives. In more detail, as shown in the chart on the top right, the annual contraction was mainly explained by lower admin and personnel expenses.

The CLP 2,100,000,000.0 decrease in admin expenses was primarily driven by reduced fixed assets, maintenance costs, and IT expenses. Regarding personnel expenses, the $494,000,000 peso decrease was mainly explained by lower total salary, in line with the annual decline of approximately 7% in headcount. This was a result of efficiency initiatives we have deployed over the past years aimed at increasing our productivity with a comprehensive approach. These factors were partially offset by an increase in severance payments related to organizational restructuring as certain functions have been centralized and optimized. In terms of our efficiency ratio, during the first quarter of ’twenty five, we achieved a 36.1% level, which is comparable to the ratio recorded in the first quarter of twenty twenty four, which is noteworthy as revenues continue to normalize.

The chart on the bottom right shows our consistent track record of efficiency and how we’ve been able to reach lower levels than prior to the pandemic. We are confident that through effective cost management, enhanced productivity and strategic use of technology, we will sustain our strong efficiency levels, aiming for approximately 39% in 2025 and maintaining below the 42% in the long term. Please turn to Slide 19. Before moving to questions, I want to go over some key takeaways. Despite the several risks and significant global uncertainties affecting our GDP forecast of 2% for this year, Chile’s strong economic fundamental and our ability to implement countercyclical measures will be crucial in mitigating potential negative impacts.

Banco de Chile is uniquely positioned to address these challenges due to our exceptional customer base, superior asset mix and quality as well as having the highest coverage ratio among peers. We remain confident in our ability to sustain our status as Chile’s most profitable bank over the long term. Our commitment to innovation, customer satisfaction and prudent risk management will continue to drive our success and ensure sustainable growth. By adapting to market changes and prioritizing our customer needs, we may aim to maintain our industry leading position for years to come. Thank you.

And if you have any questions, we’d be happy to answer them.

Conference Call Moderator: Thank you very much. We’ll now move to the Q and A part of the call. Okay. So our first question is from Yuri Fernandes from JPMorgan. Your line is now open.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Please go ahead, sir.

Conference Call Moderator: Thank you, everyone. So I would like to to ask maybe maybe to Pablo regarding regarding capital here for for Banco de Chile. As you as you explained in the presentation in July, you have a lot of capital. Right? You you just gave them, but you are well above peers.

I think CMS had some discussions on adjustments on, you know, marketing market related capital Yeah. Tier two pillars. My question is the following, Paulo. We have more visibility. Let’s say, you start to have more visibility.

How

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: about the

Conference Call Moderator: should we deploy this excess capital? Right? Should we expect at some point I know this is a recurring question for you, but should expect more bigger payouts for you? Should we see M and A? Should we see loan growth?

Just trying to understand and if you can provide some numbers. I I remember in the past, I think you used to say that 200 dps, 250 bits above the minimum requirements was somewhat the goal. So just checking if that continues to be the case. Thank you.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Hi, Yuri. I’m here with Daniel Galarce who take this question. One second. Hi, Yuri. This is Daniel Galarce.

As we have discussed in the in the previous calls, we are aware that our current positive cash in terms of capital adequacy and and also our position in terms of capital adequacy as well in the in the local industry. Of course, our tier one ratio, for instance, is three or 4% above the regulatory limit. And and and you have to consider that in in March, that ratio decreased approximately 1% due to the the the dividend payment. As we have emphasized in in previous calls, we we aim to keep to keep this favorable favorable capital buffers in order to support either future organic growth or also inorganic growth if some opportunities can arise in the in the future. So in this regard, part of our current capital position has to do with both to this loan growth, of course, and also the profitability we have observed over the last five years.

We have been with which which has been very nonrecurring, of course, due to different market factors. In addition, I would say that with our current capital buffers, we also need to say and we have to say final phase of Basel three transition. Of course, there are some pending regulations in in the in the in the local market like pillar two like the pillar two regulation, which is still pending from the from the CMS side. And and this can translate into further capital requirements for banks including us. It’s important to take into account that that the Chilean Central Bank has announced that probably the the the the contract figure will buffer will convert to a neutral level as well of around 1%.

So it’s important to note that in in terms of our capital composition, we are facing tier one capital needs only with with CET1 only with CET1 capital. So given that and and due to the lack of a deep local capital markets in term of AT one and also the cost involved in in the in in one issuances in in in foreign markets, We we are assessing the the possibility of of optimizing our our capital base in the future, but so far, we we will face capital requirements of tier one only with with CET1. So due to that, it’s it’s the the 60 the 60% dividend payout ratio is our baseline scenario for the future. And and accordingly, extra dividends or a payout ratio higher than 50% would be only possible under certain system status. Basically, loan growth below what we are expecting now, no, and and or results above what we are expecting as well.

So if that if if this doesn’t occur, probably we will maintain our our 60% dividend policy over the over the next years.

Conference Call Moderator: No. No. Super clear. This is a it’s a good problem, actually, to to add. If I may, just a a related question on on on these topics of good problems for Banco de Chile.

The the other common one we discussed is your higher allowance is the longer when we add up the the additional procedure. Right? And this has been coming down gradually. So so just checking the box here if there’s a a number that you go for this, like, if you if you feel comfortable, this is turning below 200% at some point. Thank you.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Well, that’s right. If you know the additional provisions this is Pablo speaking. As you know the additional provisions that we accumulated were during the pandemic when the the level of delinquencies didn’t make sense in the economic cycle that we’re having, and we began accumulating these additional provisions. One part of this, a portion of this, was used to implement the new consumer loan model that went into effect in February for 69,000,000,000 pesos, and we still have the rest on the books. So the coverage ratio, sure, has been coming down, but it’s been coming down based on NPLs.

So how the NPLs have evolved is NPLs and mortgage loans has increased in the industry wide. We’re significantly below the the the average in the industry. And we’ve seen slowing down or actually reversals in the if we look at year to year or quarter on quarter in terms of commercial loans and and and consumer loans. Commercial loans are relatively flat NPLs and consumer loans coming down a little bit. So since it’s a relationship between NPLs and total allowances for loan losses, the the number has come down because there’s a little bit higher NPL, but there’s a lot of guarantees in those NPLs.

Right? So as we continue to improve, if the economy improves, if everything goes a little bit back to normal, we’ll probably start to see a change in NPLs coming down, and maybe the the ratio will be higher. But it’s also important to mention that in in the case of these additional provisions is that we’re in a cycle of of a lot of uncertainty right now, especially with everything that’s going on globally. So this is very important for us to maintain in these more negative cycles that we can use this if something’s affected, not that we’re seeing something today, but if something could be affected in in in economic sector, customer base, etcetera, we have those additional provisions. So in the long term, it makes sense.

In the medium term, it makes sense that we return to those levels that either we use them, that they there’s a use for these additional provisions. We maintain them or or there’s a reversal as we’ve mentioned in other calls. But there’s no clear timeline when that will occur. And today, there’s more uncertainties than there were six months ago. So it it’s something that we’re comfortable with today.

Conference Call Moderator: No. Thank you, Pablo. But there is no number. Right? Because we were closer to 400% collection a day.

It’s just 50, as you said, just because of any POs, like, drop in nominal nominal additional per year was very minimal. Right? It went down from 700,000,000 to $6.30. It’s it’s fine. Like, but some of your peers decreased it by one four, one hundred by half.

Right? So is there a number that you believe, like, like, 200% additional coverage? That’s fine. Like, is there a number that we should believe on on this number going going forward or or or or not really?

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: If we look at the averages before the pandemic, we had numbers around 200%, but it was with a different level of additional provisions.

Conference Call Moderator: Oh, perfect. Thank you very much, sir.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Sorry. And then the and the else. Thank you. Thank you. Thank you very much.

Conference Call Moderator: Our next question comes from Bietrizabel from Goldman Sachs. My

Pablo Mejia, Head of Investor Relations, Banco de Chile: first one is regarding margins. So we saw that you increased the margin guidance to around 4.7%, which is now closer to the top of the range that you had previously. Even though you now expect a lower level of policy rate at the end of twenty twenty five, if you could give us some color on what made you increase your margin expectations there. Are you now more confident regarding any mix changes? And my second question is regarding loan growth.

So we’d like to know what are your current expectations for loan growth by segment, and what do you think that needs to happen for loan growth to accelerate above the mid single digit levels? Thank you.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Hi. Well, in terms of net interest margins, we did have a first quarter that was quite strong in in terms of inflation. And throughout the rest of the year, we’re we’re expecting that there should be, as long as the global economy isn’t impacted materially in Chile, and improvements in terms of mix and the types of loans that we’re growing. So there there should be an improvement in terms of mix. We’ve been benefiting from from the the decrease since last year to this year in terms of in in in terms of spreads and and the overnight rate, which has decreased reducing the cost of our time deposits.

So this has been translating to a slight change. But in general, it’s because the change in terms of our NIM guidance is more or less in line with what we had in the in the prior conference call. Just slight adjustments considering the evolution of the first quarter and expectations for the rest of the year in terms of, as I mentioned, mix. And there’s a little bit of reduction in terms of the guidance of the overnight rate. So we’re seeing in the beginning of the year, whether you can go into that, an overnight rate that was a little bit different from what we’re expecting today.

Rodrigo? Yeah. Hi, there, please. Thank you very much for for the question, Jeff. Let me add just a couple of ideas.

Today, we have more uncertainty in terms of the evolution of key market drivers for profitability, for margins, especially in terms of inflation interest rates. Even though in our basement scenario, we’re expecting an inflation rate of around 3.8, probably 4% by the end of the year, which would be consistent with an interest rate of around 4.25% by the end of this year. These assumptions are consistent with the absence of a higher inflation

Pablo Mejia, Head of Investor Relations, Banco de Chile: in

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: the rest of the world. And also, these assumptions are based on an extreme way covering about the current, you know, effects, which is around nine forty, nine five, nine nine 50 something like that. So but we’re aware about the uncertainty because we are facing a supply shock where we have lower lower growth, but some pressure from inflation. So it’s not clear what’s gonna be the final equilibrium. But at least for now, we think that it’s reasonable to expect some adjustment, minor adjustments, I would say, in the interest rate until probably 75 basis points from now to the end of the year.

We continue expecting a new price interest rate until a number between 44.5%, and inflation will be lower in the future converting probably by the end of this year towards 3.8%. And probably in 02/1926, the inflation rate will be only in 02/1926. The inflation rate will be around 3%. But, again, today, our main source of uncertainty in terms of the key factors affecting margins, stability are related with macro factors, especially in terms of GDP, interest rates, and inflation in the short term. And going into your second question and tying it into the first one, in terms of where we’re growing and what’s changed, we’re we’re seeing economy or or the GDP the economy dropped as well, but we’re seeing loan growth for the industry dropping a little bit.

So the guidance came down there, and and probably what we should see is more uncertainty from businesses. So maybe recovery of businesses could be slightly slower. So where we could see probably a little bit better activity is in retail products. So consumer loans is important there. So the mix is slightly different from what we’re expecting from the beginning of the year, which would be positive for net interest margin, slightly less in terms of total loan growth.

So what we’re expecting is slightly above the level of the industry, which the industry GDP expectation sorry, loan growth expectations are around 4%. For us, slightly above that, and that’ll be driven by consumer loans and mortgage loans. And we should probably see commercial loans slightly below the expectations that we had earlier in the year. And within the commercial loan, probably a little bit more activity from SMEs than from large companies in general.

Conference Call Moderator: Our next question is from Neha Agarwala from HSBC. Your line is now open. Please go

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: ahead. Hi. Congratulations from this results, and thank you for taking my question. Just a quick one. What are the main concerns that you have from a macro standpoint for the year?

There was earlier in the year, there was also discussion about higher taxes, but I guess that’s all stable for now. Is there a risk for that to come back? And and my second question is on on inflation. Like, let’s say inflation, at least so far, has been running higher than expected. How do you see it in 2026?

I believe there’s if there’s a steeper decline in inflation that could put more pressure on margins for next year. So how are you protecting yourself in in view of that? And how much of that is being managed by The US GAAP that you mentioned during your opinion last? Thank you so much.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Thanks, Neha. This is Rodrigo Arena. Thank you very much for your question. In terms of our concern or our balance of risk that we have today, our main concern for this year is related with the global economy. Okay?

It’s very important to to keep in mind, to be aware that Chile is, according to some measures, Chile is one of the most open economies in Latin America. Our total trade volume, for example, is around 55% of the the GDP. We have free trade agreements with more than 85%, around 90% of the global economy. So that’s why the evolution of the global growth, especially in our main trade partners, the even though the larger trade partner in Chile is China with 40% of global export, the second largest trade partner is The United States with nearly 16% by the end of of the last year. So the evolution of of trade policy, the new measures that could be adopted by The US authorities, the potential impact in terms of economic growth in China is, at least for the year, our main concern in terms of in terms of the impact of on growth for at at least for for the year.

Locally, probably the most important event to monitor this year is related to elections. We’re gonna have the central election in in November this year. There will be a strong reflection as well with a total change in the lower house. They have to spend it. So that’s why we have to pay attention to the evolution of the discussion, the proposal, etcetera.

Today, we knew, for example, that very important survey was released this morning from CEP, Central to Espuligos in Spanish. That’s the name of the of the company. We showed that nearly 52% of people, they haven’t decide their preference for the candidates to they candidate for the year. So we have some uncertainty in terms of who’s gonna be the president, the the composition of the congress, etcetera. In terms of taxes, we haven’t seen any proposal that put the possibility to paying taxes.

In fact, there are some proposal on the other direction considering, for example, some reduction in the corporate trade. But, again, we have to see how this pattern will evolve in the in the future. In terms of other figures, for example, employment or internal demand, we are not very concerned. Again, it’s the global economy and the result of election, the key factor to monitor this year. In terms of inflation, a key factor to monitor is the evolution of the effects because the pass through in Chile is a number between 1015%, which means that in the same rate, depreciation, for example, by 90 pesos today, it will have a potential impact on inflation of around one hundred one hundred fifty basis point over the next twelve to eighteen, eighteen months.

So we think that the evolution of the same rate will be a key factor to monitor. But if we assume an economic growth of around 2% for this and the next year, relatively stable level of effect, it could be consistent with an inflation rate of around 3.83% for this and the next year, respectively. In terms of the the final part, Pablo gonna take the final part of the the one. So in terms of how we’ve been funding the bank, it’s changed over the years, especially that our our if you look at it as an amount in terms of The US GAAP on the balance sheet for a larger bank. And and there’s two parts to this.

One is a structural part and one is the position taken by the treasury. So the structural part is somewhere around the $56,000,000,000 pesos. And and which means is we have more assets than than liabilities in in US. And there’s a structural part from the capital, structural part from the demand deposits, which are in pesos. And that would be the structural 5 to 6,000,000,000 pesos that we have on the balance sheet.

And the rest of this position is a treasury position, which is based on the expectations of our treasury on the evolution of inflation. If rates interest rates in the different currencies make sense for what they’re expecting and how they should fund the bank. So the expectations of the treasury department have led to an increase, a temporary increase in terms of the the gap on the balance sheet, and that’s what we saw at the close of this first quarter. So how that will evolve in in the future will really depend on the evolution of the expectations of our treasury department. But as of today, it’s been very successful in generating a greater return in terms of this source of revenues.

So the structural gap, around five or six. The rest is around is a treasury position, and that’s based on expectations and and and temporary factors.

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: Right. So could you could you please repeat the sensitivity that you mentioned earlier? 200 So

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: the sensitivity of 1% change in the The US GAAP. Today, we have a US or at the end of of the quarter, we had a US GAAP of 9,700,000,000,000.0 pesos. So 1% change in inflation with 97,000,000,000 pesos in net interest income.

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: Very good. Thank you so much for choosing Pablo.

Conference Call Moderator: You’re welcome. Thanks.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Thank you.

Conference Call Moderator: Our next question is from Andres Cotto from Santander. My question is regarding your medium term ROE target. I see on your presentation on the slide number nine that your medium term target is to be top one versus top two right now. You’re trading your main competitor. So I would like to understand how are you seeing ROE evolving in the medium term given that you continue to deliver above average levels of ROE considering the structural changes in terms of loan growth sorry, in terms of loan competition and in terms of expenses, also considering a significant drop in in headcount that we have seen since the pandemic.

So I would like to understand if Banco de Chile is is is expecting to to be able to deliver, let’s say, around 20% or even above 20% ROE for the midterm, considering that that’s sort of the expectation that you your main competitor has been stating.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Thank you, Andre. So in terms of our investment, investment is to be the most profitable bank in QA and all the titles. Obviously, depends on on on on the cycle and and what expectations of each bank is for that cycle and return to growth of the economy. So that’s our our long term expectation. Our is to be the most profitable bank.

So we have the robust capital base in order to to navigate the potential regulatory changes and to hopefully, I think on growth when growth comes back. So it’s very important to mention that we have the capital to grow if we need to, and and that will obviously promote an attractive ROE for us in the future. So I think that that would be the most important dimension is that our ambition, our long term ambition with everything that we’re doing is to be the most profitable bank in Q. After this year, we’ve revised our ROE forecast up or our ROAS forecast up to around 20% from the previous levels because of everything that we mentioned in the presentation. And the cost of risk today is around we’re expecting around 1.1%, which should be somewhere similar to those levels, 1.1%, one point two %, if we go back to the same mix that we had in the past.

So the the the position of the bank today allows us to continue to grow in an important manner in the future if if that’s available, and that will allow us to continue posting attractive returns.

Conference Call Moderator: And regarding the the loan growth comments that you are making, what what will be a reasonable number for loan growth over the near term or even in 02/1926, you know, 02/2025, you say it’s going to be a lag between recovering private investment and that will be translated in terms of loan growth.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: But for 02/1926, can can we expect high single digit level of loan growth? Or what is

Conference Call Moderator: the multiplier that you are seeing to loan growth once those factors abate?

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Think there’s uncertainties because of everything that’s happening much more today than there were three months ago, six months ago. And what we would expect is that there’s a lot of hyped up demand in the pipeline. So this could increase maybe higher than the levels of GDP going elasticity than we’ve had in the last period. And maybe Rodrigo can go into a little bit more detail in terms of the macro scenario on how that could occur. Yes.

Hi, Andres. Thank you for for the question. So I think it’s important to to analyze some structural trends that we’ve seen in Chile in terms of loans, especially during the last year. So for example, today, the the ratio between loans to GDP is around 75% around that. But it was before the the pension fund withdrawal, before the the the pandemic, that number was between 85 and even 90%.

So we’ve seen important delay in terms of the loan cycle compared to the cycle of the GDP. So when we adjust by any long term measure, we would see that even the level of the GDP of Chile, given the the GDP expectations as well, the level of loans should be higher than the level that we have today. We’ve seen an important delay, for example, in terms of commercial loans because of the lack of investment in Chile. A similar situation we have in terms of consumer loans, we have to understand as well that still the interest rate is on on contractionary level. So it’s reasonable to state a recovery a recovery of loans in the in the future.

In terms of the multiplier of the activity, despite in the past, we used to see levels of funds to time. But today it’s very different. But it’s reasonable to take numbers higher than one time, probably one to four, one to five. We don’t know. It depends of what’s gonna happen in the future.

But if we assume that the economy could grow between 22.5% for the next year, plus inflation rate between 33.5%, something like that, plus the electricity and a more normalized electricity of loans to UEP, it would be reasonable to stay loans for the system growing in high single digits in over the next next years.

Conference Call Moderator: That’s very clear. Thank you, Rodrigo.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Thanks.

Conference Call Moderator: Thank you very much. I will now hand it to Pablo Rodrigo for the closing remarks.

Rodrigo Arvena, Chief Economist and Institutional Relations Officer, Banco de Chile: Thanks for listening, and we look forward to speaking with you on our next quarterly results. Bye.

Conference Call Moderator: This concludes the call. Thank you, and have a nice day.

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