Earnings call transcript: Banco de Chile Q2 2025 misses EPS forecast, stock dips

Banco de Chile, with a market capitalization of $14.06 billion, reported its second-quarter earnings for 2025, revealing a slight miss on earnings per share (EPS) and revenue forecasts. The bank’s EPS came in at $3.02, below the anticipated $3.08, representing a surprise of -1.95%. Revenue totaled $762.56 billion, falling short of the expected $770.74 billion, a surprise of -1.06%. Following the announcement, Banco de Chile’s stock saw a pre-market decline of 1.84%, with shares trading at $133.98. According to InvestingPro analysis, the bank maintains an impressive dividend yield of 7.27% and has consistently paid dividends for 28 consecutive years.

Key Takeaways

• Banco de Chile reported a net income of $654 billion for Q2 2025.
• The bank’s stock dropped 1.84% in pre-market trading following the earnings report.
• New digital tools and services, including credit cards for FAN users, were launched.
• The bank maintained a strong return on equity (ROE) of 21.9%.
• Chile’s economic expansion in Q2 2025 was 2.9%, supporting the bank’s performance.

Company Performance

Banco de Chile showed resilience in the second quarter of 2025 with a net income of $654 billion and a year-to-date growth of 2%. Despite the earnings miss, the bank maintained a robust ROE of 21.9%, indicating strong profitability. The bank’s focus on digital transformation and operational efficiency continues to drive its performance, even as economic conditions in Chile improve, with a GDP growth of 2.9% in Q2 2025. InvestingPro data reveals the bank trades at an attractive P/E ratio of 11.25, with analysts forecasting revenue growth of 16% for FY2025. Get access to 10 more exclusive InvestingPro Tips and comprehensive financial analysis with a subscription.

Financial Highlights

• Revenue: $762.56 billion, slightly below the forecast of $770.74 billion.
• Earnings per share: $3.02, compared to the forecast of $3.08.
• Net income: $654 billion for Q2 2025.
• Operating income: $763 billion.
• Customer income: $626 billion, up 2.7% year-on-year.
• Net interest margin: 4.7-4.8%.

Earnings vs. Forecast

Banco de Chile’s actual EPS of $3.02 fell short of the forecasted $3.08, marking a negative surprise of 1.95%. Revenue also missed expectations by 1.06%, with actual figures at $762.56 billion against a forecast of $770.74 billion. This marks a deviation from the company’s historical trend of meeting or exceeding forecasts, potentially impacting investor sentiment.

Market Reaction

Following the earnings announcement, Banco de Chile’s stock experienced a pre-market decline of 1.84%, with shares trading at $133.98. The stock remains within its 52-week range, with a low of $107.42 and a high of $150. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels. However, the bank’s strong financial health score and historically low price volatility suggest stability. This movement reflects investor concerns over the earnings miss and its implications for future performance. Discover detailed valuation metrics and more insights with InvestingPro’s comprehensive research report, available for over 1,400 stocks.

Outlook & Guidance

Looking ahead, Banco de Chile has revised its 2025 GDP forecast to 2.3% and expects loan growth in the high single digits. The bank aims for a ROE around 21% and a net interest margin of 4.5-4.7%. The efficiency ratio is targeted at 38%, with a cost of risk projected at 1%. Upcoming product launches include the BIPAGO acquiring service in Q4 2025.

Executive Commentary

Rodrigo Aravena, Chief Economist, stated, "We are proud of Banco de Chile’s overall performance during this period." Pablo Mejia, Head of Investor Relations, emphasized, "Our aspiration is to be the most profitable bank in the industry." Daniel Galarce, Head of Financial Control, noted, "We expect to use our capital buffers to support future loan growth."

Risks and Challenges

• Economic uncertainty due to upcoming elections in Chile.
• Potential impacts of inflation and interest rate changes.
• Challenges in maintaining market leadership amidst increasing competition.
• Risks associated with digital transformation and cybersecurity.
• Potential regulatory changes affecting the banking sector.

Q&A

During the earnings call, analysts inquired about the potential political impacts of upcoming elections, the bank’s loan growth strategy focusing on SMEs and consumer lending, and the possibility of extraordinary dividends. The bank also addressed its strategy for additional provisions, highlighting its commitment to maintaining financial stability.

Full transcript - Banco De Chile (SN) (CHILE) Q2 2025:

Conference Moderator: Good afternoon, and welcome to Banco de Chile’s Second Quarter twenty twenty five Results Conference Call. If you need a copy of the financial management’s review, it is available on the company’s website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Institutional Relations Officer Mr. Pablo Mejia, Head of Investor Relations and Daniel Galarce, Head of Financial Control and Capital.

Before we begin, I’d like to remind you that this call is being recorded, and the 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 notes in the company’s press release regarding forward looking statements. I would now like to turn the call over to Mr. Rodrigo Aravena.

Please go ahead.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the second quarter of this year. Once again, we are proud of Banco de Chile overall performance during this period since our bank has demonstrated its strong position in the local market by delivering solid results across various areas. As of June 2025, we reported a net income of $654,000,000,000 that represents a year to date growth of 2%, resulting in an ROE of 21.9%. As we will discuss later, these outcomes were driven by strong customer income, improved asset quality, increased loan activity in targeted segments and ongoing efforts in cost control and efficiency.

As mentioned in previous calls, these results are particularly meaningful given the ongoing challenges and rising uncertainties in the global macroeconomic landscape. In circumstances like we currently face, solid long term fundamentals truly stand out. In this context, it’s worth highlighting the bank’s key strengths, including best in class asset quality, a strong capital base and a robust level of additional provisions. These elements set us apart not only in Chile, but also across the region. Now I’d like to share a brief analysis of the macroeconomic environment.

Please refer to slide number three. The Chilean economy continues to show signs of recovery. As illustrated in the graph on the left, growth has followed an upward trend since the 2024, peaking in the fourth quarter with a 4% expansion. In the first quarter of this year, GDP grew by 2.3% year on year, still above the estimated long term trend of around 2%. Although this represents a slowdown when compared to the previous quarter, it’s important to note the improvement in certain components of domestic demand, such as durable goods consumption up 10.9% year on year, investment in machinery and equipment up 5.3% year on year as shown in the upper right chart.

Certainly, the strengthening observed in domestic demand could anticipate a better strength for loan growth. Preliminally data for the second quarter suggests a similar trajectory. According to the monthly economic index in a sec, the economic expanded by 2.9% in the second quarter and 2.6% in the first half of this year, still above the long term trend. The breakdown showed that commerce sector was one of the main drivers of this expansion. The labor market continues to show mixed signals.

In June, the unemployment rate stood at 8.9%, up 60 basis points from a year earlier and 20 basis points above the first quarter. This increase was driven by 0.6% year on year rise in the level four, while there were no changes in the number of employed individuals. As a result, the Labelforce participation rate reached 62%, still below the pre pandemic peak of nearly 64. On a positive note, real wages rose by 3.6% year on year, well above the long term average, providing additional support for private consumption. Please go to Slide number four to review inflation and interest rate trends.

Inflation has remained above the central bank 3% target since late twenty twenty, although it’s been trending downwards as shown in the chart on the left. In June, headline and non inflation rate stood at 4.1% down from 4.9% in March. However, core inflation, which excludes volatile items, remained relatively stable, rising by just 10 basis points to 3.8%. This evolution suggests that the decline in inflation has been largely driven by volatile components such as food, which fell from 5.4% in March to 1.9% in June and energy, down from 14.2 to 9.9%. The super index for goods excluding volatile items was 2.9% in June.

Overall, various indicators point to easing inflationary pressures in recent months. In response, the Central Bank lowered the policy rate by 25 basis points to 4.75 in line with market expectations. The company’s statement indicated that further rate cuts are likely this year if the fundamental continue being consistent with a normalization of inflation towards the 3% target. In this context, the Central Bank suggested that the interest rate is expected to convert towards its neutral level estimated at around 4% over the coming quarters. The Chilean peso has remained volatile by hovering around MXN950 per dollar in recent months.

However, as shown in the bottom right chart, the U. S. Dollar measured by the DXY Index which reflects the multilateral value of the dollar against our currency basket has weakened significantly this year, a trend not yet reflected in the local exchange rate. This is doubling maybe influenced by Chile’s faster pace of interest rate cuts when compared to other countries. Now, I’d like to present our basis scenario for 2025.

Please go to Slide number five. We have revised our GDP forecast for 2025 upwards from 2% in the previous call to 2.3% now. This adjustment reflects higher than expected growth at the beginning of this year rather than improved profits. As a result, we anticipate that the economy will grow slightly below the 2.6% recorded last year due to weaker global activity, which is expected to dampen export growth. However, a stronger domestic demand should partly offset these external drags.

This scenario should support a gradual decline in year end heparin inflation to a level below 4% assuming no major external shock or significant depreciation of the Chilean peso. Under these conditions, the Central Bank could lower the monetary policy rate to around 4.25%. Finally, it’s important to reiterate the unusually high levels of uncertainty we face, particularly regarding downside risk to growth stemming from global factors. Domestically, attention will also be focused on the upcoming presidential and parliamentary elections in November. Please turn to Slide six where we provide an overview of the latest trend in the Chilean banking industry.

As shown in the chart on the top left, the industry posted another quarter of good results. Net income reached COP1.4 trillion. This performance translated into a return on average equity of 16.3%. Operating revenue seems to be recovering on the grounds of the resilience of recurring drivers associated with the lending and deposit activity. After some years marked by a greater prominence of financial related revenues, given important adjustment in key market drivers such as inflation, interest rate and the emergency of the FCIC funding.

Regarding asset quality, the chart on the top right shows that non performing loans have remained stable at 2.4% with a coverage ratio at 148% in line with recent quarters. This figure suggests that despite a challenging macroeconomic backdrop characterized by increased unemployment and higher than normal borrowing cost, banks have managed to maintain delinquency under control while keeping prudent provisioning levels and adequate buffers to absorb potential credit deterioration. In terms of loan growth, however, as illustrated in the bottom left chart, the loans to GDP ratio continues to be below trend by reaching 77% as of June 2025. This reflects the subdued pace of credit expansion relative to economic activity registered after the pandemic. This is unclear in the chart on the bottom right, the persistent weakness in loan growth across all segments in real terms.

Since 2019, total loans have contracted with consumer lending showing the target decline followed by the commercial portfolio. Mortgage loans have shown some resilience, but it’s still very weak considering the demand for housing given recent demographic, economic and social changes. This slow demand for loans has been largely constrained by high interest rate, cautions corporate borrowing due to uncertainty as well as weak unemployment figures. In summary, while the industry has shown signs of recovering profitability and maintained solid asset quality, credit activity remains soft. Nevertheless, as soon as some sources of uncertainty dissipate such as the potential impact of external risk factors on the local economy and the outcome of the upcoming presidential and parliamentary elections among other factors, the lending business show gradually return to long term GDP multipliers.

Next, Paolo will share information regarding Banco de Chile development and financial results.

Pablo Mejia, Head of Investor Relations, Banco de Chile: Thank you, Rodrigo. Let’s review Slide eight, which outlines our strategic framework and aspirations. On the left side of the slide is our strategy, structured around three key elements: our purpose, strategic pillars and strategic plan. Our purpose is straightforward: to support the development of Chile, its people and its businesses. We achieved this by leveraging our long standing competitive strengths, trust, stability and deep relationships across every segment in which we operate.

Our strategic pillars define how we operate with a strong focus on efficiency, collaboration and the customer first mindset. These principles guide both our short and long term decision making, keeping us aligned with innovation and operational excellence. Our business scopes defined as where we will operate and how we will deliver value, making us more agile, competitive and responsive to a constantly evolving environment and to the needs of our clients. Through this strategic framework, we aim to meet our midterm targets as shown on the right hand side of the slide. We aim to achieve sustainable, long term industry leading profitability.

We’re also targeting market leadership in both commercial and consumer loans and a high Net Promoter Score, which reflects the strength of our customer relationships over time. Additionally, we aspire to rank among the top three in corporate reputation in Chile. And on the cost front, we are committed to maintaining a cost to income ratio below 42%, reinforcing our focus on operational efficiency and disciplined execution through the development of digital capabilities and the continuous improvement in technological infrastructure. To summarize, our strategy is centered in long term sustainability with management incentives aligned with these strategic priorities, ensuring we continue to create value for all of our stakeholders. Please move to Slide nine, where we’ll go over our key business achievements.

During the first half of this year, we made significant progress on several initiatives aligned with our strategic priorities. On the digital front, we launched multiple enhancements aimed at improving customer experience and supporting commercial activity. These included new authentication tools for individuals and companies, payment app into the main banking platform and the rollout of new credit simulators. In parallel, our FAN digital accounts continued to perform strongly, achieving a 30% cross sell rate to current accounts, reinforcing Fan’s role as a key driver of customer acquisition. To further unlock its potential, we introduced credit cards and micro loans tailored to Fan users.

In terms of AI adoption, we expanded the capabilities of Fanny, our virtual assistant, which now supports queries across all fan accounts. We also extended the use of AI to internal operations, particularly within the commercial and technology teams, contributing to improved productivity. In addition, we continued to execute our efficiency and productivity agenda through targeted initiatives. These include IT cost control measures such as the renegotiation of licensing agreements and gains in productivity driven by digital sales and technology adoption. Likewise, we have captured significant value through initiatives aimed at centralizing subsidiary functions, optimizing organizational structures, reducing infrastructure expenses and redesigning the service model.

In line with this, we recently integrated our debt collection collection subsidiary called Socofin into the bank’s operations, generating synergies and enhancing both operational efficiency and customer experience. In addition, we have made significant progress in the technological transformation process of some of subsidiaries to continue leading the industry in both the mutual funds and securities brokerage business. In the sustainability front, we actively participated in the Fogahiers state guaranteed credit programs aimed at stimulating economic activity through the housing, construction and mortgage lending. Furthermore, we issued a $122,000,000 bond in international markets to fund social initiatives with a particular focus on supporting women led small and medium sized enterprises. Together, these initiatives reinforce the strategic positioning and strengthen our foundation to capture future growth opportunities.

Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the 2025, posting a net income of CLP $3.00 5,000,000,000, equivalent to a return on average capital of 23.3% and a return on average equity of 20.5%, as shown on the chart and table to the left. Although these figures represent a slight decrease as compared to the $324,000,000,000 recorded the same period last year, our profitability remains solid. It’s important to mention that we outperformed our peers in both net income market share and return on average assets, as illustrated on the charts to the right. Specifically, in the first half of the year, our market share net income remained well above our competitors and their return on average assets continued to lead the industry with a very wide gap to our competition, as illustrated on the charts.

These results reflect our consistent focus customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income generating capacity, particularly focused on customer income. Our strategy remains centered in building a sustainable and profitable bank, and we continue to aspire to be the industry’s benchmark in profitability. Let’s take a closer look at our operating income performance on the next slide, 12. We continue to demonstrate the strongest operating revenues in the local industry, reaffirming the resilience of our superior business model through market cycles. As shown on the charts to the left, operating income totaled $763,000,000,000 in the 2025, reflecting a stable performance despite the context of subdued business activity.

This figure was composed of a solid customer income of CLP $626,000,000,000, up 2.7% year on year and non customer income of CLP 137,000,000,000, which declined as compared to the 160,000,000,000 recorded in the same period last year. The decrease in noncustomer income was primarily attributable to lower inflation revenues on management of our structural U. S. Net asset exposure and the maturity of FCIC funding from the Central Bank in July 2024. These effects were partially offset by increased net revenues from the management of our investment portfolio benefited from a downward trend in the 2025.

Customer income growth was driven by a 6.2% year on year increase in net income from loans and the 8.1% annual rise in fee income, which enabled us to offset the decline in the contribution of both demand and time deposits as a consequence of the annual decline in short term interest rates, which naturally compressed profitability in both products. The annual rise in income from loans was primarily driven by the consumer loan book due to improved lending spreads and a 3.7% annual increase in average balances. Additionally, commercial loans and residential mortgages contributed to customer income growth, mainly thanks to greater average volumes on an annual basis. Taking a closer look at commercial loans, the SME portfolio continued to expand 4.8% year on year, supporting customer income growth as well. Notably, when isolating BOGAPI loan amortization, the portfolio has been gaining momentum by rising 8.1 year on year, helping to improve lending spreads in this segment.

As a result, our net interest margin reached 4.7% this quarter and 4.8% as of June, maintaining a leading position in the industry. Fee growth was led by mutual fund management and transactional products. Fee income from mutual fund management rose 23.8% year on year, driven by a solid 16.6% increase in assets under management. In addition, fees from transactional products were driven by both checking fees that posted 11.2% year on year increase, supported by 4.9% rise in total account holders and fee income from debit accounts growing 6.9% year on year, largely fueled by the success of our fan product, which contributed to an 8.2% increase in the volume of debit card transactions on an annual basis. In this regard, it’s worth noting that our fan product has been a key driver of current account originations, accounting for approximately onethree of all new current account customers.

The strong performance in operating revenues translated into an operating margin of 6.6 for the first half of the year. These figures underscore the strength of our business strategy and our ability to consistently deliver value to our premium customer base across both lending and non lending products, regardless of the prevailing economic environment. Please turn to Slide 13, where we will review the evolution of our loan portfolio. As illustrated on the slide on the left, total loans reached 39,400,000,000,000.0 as of June 2025, reflecting an annual increase of 3.9%. This credit expansion continues to reflect subdued business dynamic across the industry lagging the pace of economic activity.

This trend aligns with the Central Bank’s latest credit survey, which confirms that overall credit demand remains soft, which in our view continues to be primarily driven by low consumer and business confidence. Breaking it down by segment, mortgage loans grew 8.1 year over year supported by demand from upper income clients. In particular, originations in the segment were dynamic, growing 14.1% in the first half of the year compared to the same period last year. Meanwhile, consumer loans rose 4.5% annually amid a cautious borrowing environment and interest rates that remain above historical averages. As for commercial loans, they posted a moderate increase of only 1% constrained by weak investment and ongoing political uncertainty.

When analyzing the real loan growth relative to pre pandemic levels, distinct patterns emerge compared to the industry. As illustrated on the right of the slide, we’ve delivered stronger growth in consumer loans, a segment where we aim to lead while maintaining a comparable pace of expansion in commercial loans. In the mortgage loan segment, the industry has outpaced us, which is consistent with our strategic focus as this is not a segment where we aspire market leadership. It’s also important to note that loan volumes remained well below pre pandemic levels in real terms, indicating room for future faster growth on the grounds of more favorable financial conditions for borrowers, a rebound in domestic demand and a decline in interest rates. In terms of portfolio composition, our commercial loans remain well diversified across sectors as of June 2025.

Are in social and personal services, financial services and retail, hotels and restaurants, all representing 45% of the commercial loan portfolio, while the real estate and construction sectors jointly represent only 11%. This distribution reflects our prudent risk management approach and our continued commitment to supporting key sectors of the Chilean economy. Please turn to Slide 14 to discuss our competitive balance sheet structure. As depicted in the charts on the top left, our assets and liability structure remained solid and aligned with our strategic focus on commercial banking. As of June 2025, loans represented 73.8% of our total assets.

Financial instruments in turn, including trading and AFS and held to maturity portfolios, jointly accounted for almost 12%, with held to maturity assets representing a minor portion of this figure. It’s important to highlight that we exchanged bonds denominated in U. S. During the quarter issued by the Chilean government that were close to maturity and formally booked as held to maturity. For newly issued bonds denominated in pesos maturing in 2027, the new bonds were booked as available for sale with changes in market value reflected in equity.

On the liability side, deposits remain our primary source of funding, representing 54.8% of total assets. Within this, time deposits and saving accounts accounted for 28.7%, while demand deposits reached 26.1%. As shown on the chart to the right, our noninterest bearing demand deposits fund 35.4% of our loan book, which represents a significant advantage over our peers in terms of cost of funding. This balance sheet structure continues to be one of the key drivers of our outstanding net interest margin. Moving to liquidity.

Our ratios remain well above regulatory requirements. As of June 2025, our liquidity coverage ratio stood over 195%, comfortably above the 100% regulatory limit. The liquidity coverage ratio is designed to ensure that banks hold sufficient high quality liquid assets to withstand a thirty day stress scenario. Accordingly, our current level reflects the strength of our liquidity position. Similarly, our net stable funding ratio reached 117, exceeding the minimum requirement by 27 percentage points.

The net stable funding ratio measures the stability of a bank’s funding over a one year horizon, ensuring that long term assets are backed by stable funding sources. These figures reflect our prudent liquidity management and strong profile. In addition, our UF GAAP reached trillion by the June 2025, implying a sensitivity of approximately COP90 billion interest income for every 1% change in inflation. It’s important to recall this gap is composed of both our structural U. S.

Position, which serves as an economic hedge against inflation for our equity and directional positions managed by our treasury to capitalize on short term rate differentials between the peso and The U. S. Given the persistence of inflation above the Central Bank’s target range and the view of our treasury on the evolution of key market factors, we increased our inflation index exposures for a period of time, although this exposure came down in the 2025 as inflation expectations seem to be normalized. We firmly believe that income generated from this strategy has effectively offset the associated risks over time, as demonstrated by the market lean position we have held in terms of profitability over the last years. Please turn to Slide 15 to review our capital position.

As shown on the slide, Banco de Chile continues to maintain a solid capital base well above the regulatory requirements and our peers. As of June 2025, our common equity Tier one ratio reached 14%, positioning us among the top performers in the industry. Including additional Tier one and Tier two, our total Basel III capital ratio stood at 17.8%, significantly above the regulatory minimum and providing a strong capital slack to support future growth. This robust capital position is the result of a combination of factors, including consistently high profitability and solid earnings retention practices over time. In addition, our positive capital gaps have also resulted from subdued loan growth.

Our strong capital strategy is designed to face regulatory changes stemming from the final phase of Basel III implementation while maintaining enough business flexibility to address both organic and inorganic growth opportunities in the future. It’s also important to note that Chile operates under one of the most stringent regulatory frameworks with higher risk weighted asset density in comparison with other countries operating under Basel III, where internal models have a key role. In summary, risk weighted assets under Basel III in Chile are comparable to those formerly existing in the Basel I framework. On top of that, the local regulations has basically imposed the same capital requirements on the Chilean banking system than those existing countries that present lower risk weighted asset density, including the systemic and pillar two capital charges together with conservation and countercyclical capital buffers. Despite this, we continue to exceed all capital requirements, underscoring the strength and resilience of our balance sheet.

Please turn to Slide 16 to review our asset quality. Banco de Chile continues to demonstrate leading asset quality, supported by prudent risk management and conservative provisioning strategy. During the 2025, expected credit losses totaled billion, reflecting a 1.5% increase compared to the same period last year. This figure remains positive, particularly in the context of a still normalizing credit cycle marked by higher than normal delinquency in some business segments. This translates into a cost of risk of only 0.98%, which is slightly below our long term level and stable versus recent quarters, demonstrating the strength of our loan portfolio diversification and effective risk management.

Regarding delinquency, it’s important to note that nonperforming loans remained above pre pandemic levels, as shown in the chart on the top right. This trend is observed across the banking industry. However, past due loans seem to be beginning to gradually return to more normal levels as credit conditions continue to ease, particularly in certain lending products, as illustrated in the charts on the bottom right. In this environment, our delinquency ratio stood at 1.47% in June 2025, which is well below the levels posted by our peers. Looking ahead, we expect to see a gradual improvement in asset quality as economic conditions continue to strengthen across all lending categories.

In terms of provisions, we maintained the strongest coverage level in the industry. As of June 2025, our total provisions amounted to $1,500,000,000,000 composed of $825,000,000,000 in allowances for loan losses and $631,000,000,000 provides a robust buffer to absorb potential credit deterioration. Accordingly, our coverage ratio stands at two fifty two percent in June 2025, reflecting conservative and forward looking approach to credit risk management while significantly outpacing our peers. Overall, our strong asset quality metrics, high coverage levels and disciplined risk management continue to differentiate us from peers and position us well to navigate evolving credit conditions. Please turn to Slide 17.

Operating expenses totaled billion in the 2025, remaining flat when compared to the 2025 and increasing 3% year over year. It’s important to mention this growth remains below the inflation rate that accumulated 4.5 over the past twelve months. The modest increase in operating expenses demonstrates both our ongoing efforts in cost control initiatives and our sustained focus on driving efficiency across through the adoption of digital solutions. In the top right chart on the slide, we can see a detailed breakdown of the change in operating expenses between the 2024 and the 2025. Personnel expenses rose by 0.8%, primarily due to higher severance payments and an increase in one off bonuses following collective bargaining processes conducted during the quarter by two of our subsidiaries.

Administrative expenses went up by 4.3%, mainly driven by higher IT related costs associated with enhancements to our IT infrastructure, internal initiatives aimed at boosting operational efficiency and marketing expenses due to sponsorships aligned with our commercial strategy. As shown on the chart on the bottom right, our efficiency level reached 36.4% this quarter, a notable achievement driven by a sustained focus on productivity across the organization, which has significantly improved efficiency compared to the pre pandemic levels that averaged nearly 45%. Looking ahead, we remain confident that our strong cost control, branch optimization efforts and ongoing efficiency initiatives will support our midterm target of maintaining efficiency levels below 42%. Please turn to Slide 18 for key takeaways. On the macroeconomic front, we have raised our GDP forecast for 2025 to 2.3%, up from the 2% projected last quarter.

This revision is mainly explained by stronger than expected economic performance in the early part of the year. However, it doesn’t reflect an improvement in the outlook of the remainder of 2025, given the deterioration in global conditions, particularly rising trade and geopolitical tensions. As for Banco de Chile, given the solid performance achieved in the first half of the year, we have also updated our baseline scenario for the full year 2025. From a revenue perspective, we expect our net interest margin to remain around 4.7% by year end, supported by an inflation rate measured as a UF variation of 3.4% that remains above the midpoint of the Central Bank’s target range and steepened local yield curves as the monetary policy rate continues to decline. In terms of credit risk, we now forecast an expected credit loss ratio of approximately 1% for the year, below the 1.1% projected in the prior quarter based on slightly better than expected credit charges posted during the first half of the year.

We also anticipate a gradual improvement in our past due loan ratio as economic activity gains momentum. In operating expenses, we continue to benefit from productivity gains and a strong cost control culture. As a result, we have revised our efficiency ratio forecast down to approximately 38% for the full year compared to the 39% previously forecasted. Based on these drivers and the absence of non recurrent factors, we have increased our full year return on average capital estimate to approximately 21%, up from 20% in the prior guidance. In summary, we remain confident in our ability to continue delivering industry leading results and to maintain our position as the most profitable and well capitalized bank in Chile over the long term as shown on the chart on the left.

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

Conference Moderator: Thank you very much. We’ll now be moving to the Q and A part of this We’ll wait a few moments for the questions to come in. Okay. So our first question is from Ernesto Gabelondo from Bank of America.

Ernesto Gabelondo, Analyst, Bank of America: Rodrigo and Pablo, and thanks for the opportunity to take questions. My first question will be on the political landscape. I would appreciate, Rodrigo, if you can give us your 2¢ on the presidential polls and potential regulation related to taxes, interchange rate and mortgages, CDI and if there could be potential impacts for Banco de Chile. My second question will be on NIMs. As you have explained in your presentation, for every change of 1% in interest rates, NIM has an impact of around 9,000,000,000.

But just wondering, looking beyond this year, how do you see the overnight rate next year? And also, how should we think about NIMs next year? And for my last question is, as you said, in terms of the ROE, you’re expected to be around 21% this year. But we just wanted to double check how are you seeing the ROE for the medium term? And what will be the minimum common equity Tier one ratio you would like to have under that scenario?

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: Hi, Ernesto. Thank you very much for for your question. This is Eduardo Arenas. Well, on the political scenario and macro concerns, we have, different things to consider. First of all, I think that, it’s very important to be aware that according to different surveys, it’s very likely that there will be a second round in Chile, which will be by the end of this year.

I think there is not any candidate with more than 50% of both, and it is very important to remember that in Chile, when there is any candidate with more than 50% of votes, there is a second second round, which is scheduled for December. Even though it’s not clear who’s gonna compete in the the runoff, there are some topics where there is a broad consensus in Chile that are very important to put on the table in terms of the discussion of the value policy in Chile for for the next presidential term. One of them is related with the economic growth. So we have seen a growing concern for different candidates in terms of the need to improve the growth in the future. It’s very important to remember that in Chile, the average economic growth since 2014 until now has been only 2%, which is below the average global economic growth.

So that’s why we’ve seen some proposals related with lower corporate tax rate. We’ve seen some different proposals in order to improve, for example, to to reduce the bureaucracy, different to improve as well the system related with environmental licenses and permits. So what we’ve seen in general is that there is a consensus in in terms to address the different challenges related with growth, employment, the fiscal debt as well. And one of the measures that is getting more popular in Chile is the possibility to reduce taxes in the future. But it’s important, additionally, to be aware that any change related taxes has to be approved by the congress, in both cameras of the congress.

And so that’s why it’s also important to analyze the result of the parliamentary elections in Chile for the next year. So when we consider all the available information, I mean, the weaker global environment in Chile, Chile is a very open economy, as you know. So this is a negative news for Chile, but on the other hand, we’ve seen more dynamism in the domestic demand in terms of employment, in terms of investment, and durable consumption, for example. That’s why we feel comfortable with the forecast of 2.3 for the year, and it’s reasonable to take the number a similar number for the next next year. In terms of the overnight rate, which was your second question or the part of your question, We are expecting lower interest rate in the future.

The Central Bank reduced the rate by 25 basis points in the latest monetary policy meeting to 475%. It’s reasonable to expect an interest rate of around 4.25% or even 4% at some point of the next year, but it’s gonna depend on the evolution of, you know, the global inflation exchange rate, etcetera. Of course, these market drivers, market factors will be very important in terms of the final stability ROE of the bank. And about you want to go into that?

Pablo, Executive, Banco de Chile: So in terms of your second question, in terms of net interest margins, what we have today is a level around 4.8% for net interest margin, obviously, depending on how the inflation level is in the next couple of months, will depend on the evolution of that figure for the rest of the year and especially for the third quarter because, as you know, we had negative inflation a couple of months ago. So that would be an important driver to see how the inflation will be the rest of this year, where we’re expecting a level of inflation slightly above in terms of The U. S. Variation, above the long term level target of the Central Bank. And we expect that should continue to move more aligned with the Central Bank in the medium term.

So we have a little bit higher levels of net interest margin today because of that, but 0.5% more or less generates, as you mentioned, about CLP 40,000,000,000 more in net interest income, that’s equal to around 10 basis points of NIM. And in the medium term, we think a level of NIM, a reasonable level is somewhere around 4.5% to 4.7%, as we’ve said in prior calls. And obviously, that depends on different factors. It depends on the mix. If we see a recovery in the loan mix, how this recovers, which segments.

Our target segments is consumer loans, SME loans, but we also want to be leaders in commercial corporate banking. So the evolution will depend on the mix, inflation, as we just spoke, as well as yield curves. So how the interest rates move in the future today. We’re in a much better position than prior to the pandemic, but that will depend on these factors on how the evolution of our net interest margin will evolve in the future. And if we go into ROEs, our aspiration is to be the leader in the industry.

So we think we have all the tools to do this. We’ve been enhancing all of our digital platforms, improving productivity across the bank, focused on growing in the most attractive segments in the industry. So this should allow us to maintain a very attractive return on assets and also return on total equity, return on average capital. It’s also important to note that when we calculate the traditional calculation of return on average equity, return on average capital, tend not to include AT1 bonds. It’s important to remember that the AT1 bonds and the interest rates of these bonds is actually recorded in retained earnings and not in net interest expense as you would see or in the profit and loss as you would see normally of any other bonds.

So we’re actually by emitting issuing AP ones, we can actually see that the capital is retained, earnings is is coming down, so that actually helps ROE. So today, we don’t have AP ones. So this is something to take into consideration when comparing us to other banks in the industry or globally. And in terms of the capital adequacy ratios, your question, we’ll pass that to Daniel Galacio. Ernesto, this

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: is Daniel Galacio. As you probably know, our CET1 ratio is 4% or 5% above regulatory limits today. And this is basically due to the subdued economic growth, of course, and also the excellent financial results we have achieved this year. By the end of the year, we also expect to maintain the current levels of capital adequacy ratios by the 2025. Certainly, loan growth has

Yuri Fernandes, Analyst, JPMorgan: been

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: below expectations. And accordingly, it is probably to remain like that over the rest of the year. And but as we have said in the past, we expect to use our existing capital buffers in order to support future loan growth in the coming years as long as the economy gains some momentum, of course. Also, our current capital position should allow us to not only comply with capital requirements associated with Pillar one, but also any requirement related to Pillar two, if any. So as long as the economy reactivates and we need more capital in order to operate, of course, in the normal course of business.

We expect to always maintain a favorable gap of at least 1% in terms of capital adequacy when compared to regulatory limits, okay? At least 1%, of course. And this obviously depends on the evolution of loan growth and also financial results. Overall, also, excuse me?

Ernesto Gabelondo, Analyst, Bank of America: No. No. Yes. I I agree, and and thank you thank you very much. I I interrupted.

Sorry. Okay. No. So I just have a follow ups, a couple of follow ups. One is on if you can give us also any comments related to potential regulatory changes related taxes, the interchange rate, the mortgages, the CDI, any update on that will be helpful.

And the other one is a follow-up on your ROE for the medium term. In the past, you have said it could be around 18%. I just want to double check if it’s no longer 18%, it could be more at the 20%. Just also wanted to have that. Thank you.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: Okay. This is Radio Aravanagh. In terms of the regulations, what we’ve seen so far is that most of the discussion in Chile is more related with the macro policies, related with corporate tax rate, related with some adjustment of fiscal spending, something like that. But in terms of any material regulation affecting the banking industry and more idiosyncratic regulation, we don’t have any different access to pilots here today. Most of the discussion is related with the macro the macro analysis, the the macroeconomic in Chile, but, again, it’s going to depend on who’s going to be present in Chile and the composition of the as well.

In terms of ROE, as

Pablo, Executive, Banco de Chile: I mentioned, our aspiration is to be the most profitable bank in terms of profitability of return on average capital. And it really depends when asking that question in what scenario, and what scenario in place and what scenario of rates and yield curves. If we look today, if we look at how we are today or over the past few years, we’ve been a very profitable bank in the industry and that’s been with a very high level of capital. If we look at our regulatory capital or just our total capital, we have a very high level, and we have room to continue growing. So for the future, we think that we should be we have all the tools to be the most profitable, but it really depends on the scenario.

So when comparing one bank to another, it’s it’s challenging to to give an exact number because it depends on which scenario, because it depends on the cycles. So in this cycle, we’re a bank that has over 20%, in a cycle where interest rates were much lower like in the past, it would be a different scenario. But today, the banking sector is a profitable banking sector, and we think we should be the leaders amongst them.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: So let me just to reinforce one idea. So the the main difference in terms of the evolution of ROE in the future is more related with the market factors rather than a specific aspect of the of the bank. So our strategy is very clear. We have been mentioning different presentation even today with our our main strategic focus. We’ve been discussing that.

But the main source of uncertainty in terms of the long term ROE is related with the final level of the interest rate, the final level of inflation, clearly, the the final in terms of of the loans compared to the GDP. So my point here is that the main source, you know, of uncertainty or doubts are related with them with matter factors, which will affect all the banks in in Chile, not only for us. But in our case, the strategy is very clear now with the existing factors as well. So that’s why, as Pablo said, we are confident in terms of our fundamentals to be the leader in in stability in

Ernesto Gabelondo, Analyst, Bank of America: that case. Fair enough. Thank you very much.

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

Conference Moderator: Thank you very much. Our next question is from Lindsey Shima from Goldman Sachs. Your line is now open. Please go ahead.

Lindsey Shima, Analyst, Goldman Sachs: Hi, good afternoon, and thank you for taking my question. I was wondering if you could expand on what cost control initiatives particularly have driven the lower than expected expense growth? And then looking forward, should we start to see expenses accelerate towards inflation levels? Then if so, what would that timeline look like? Thank you.

Pablo, Executive, Banco de Chile: Thanks. So if we look at the evolution of Banco de Chile, I think we can see some very important changes over the last, let’s say, ten, fifteen years, where at one point we had efficiency levels worse than average of the industry and today we’re amongst the leaders. One of the things that we implement is a lot of cost controls across the bank, improved incremental changes across different levels, which is using our resources better. One of the main things that we’ve seen recently is a reduction on branch network. Before the pandemic in 2018, we had three ninety branches.

Today, we have two twenty four branches. Also, the increased use of digital tools, digitally enhancing Banco de Chile in terms of the front office and the back office has allowed us to be a much more efficient bank to grow with less operational expenses. And if we look at the very short term, what we’ve been doing is we’ve reviewed our loyalty programs in line with the adjustments of acquiring reduction fees for the credit card business. We’ve optimized different areas of the bank in terms of, for example, telemarketing expenses. We’ve shifted marketing efforts to more digital channels, which we’ve seen an improvement in terms of costs as well over the last period.

This whole initiative started very easily where you could find a lot of easy areas to reduce expenses. But today, it’s becoming a little bit more taking a little bit longer in terms to find the significant improvements quickly as we did in the past. We have a branch network that today is more streamlined. We have implemented a lot of digital solutions. However, we think that we can continue still to be have very good efficiency indicators despite the high operating income that we’ve had, thanks to inflation and other onetime effects.

So in the long term, we think that we should have an efficiency ratio better than 42%. That’s our aspiration. And I think with that, it explains the question. But there was a second part to your question, which I didn’t catch.

Lindsey Shima, Analyst, Goldman Sachs: It was just how long should it take for us to see the efficiency ratio get towards that 42% and when we should start to see expenses growing closer to inflation?

Pablo, Executive, Banco de Chile: Well, the aspiration is less than 42%. So we’re well below that probably. And I would say this year, have 38% expected efficiency ratio in the guidance. The aspiration is to be below 42%. It’s something that we’ve, over the last few years, been well below.

So not necessarily returning to 42%. It’s something that’s reviewed on an annual basis. No change depending on the evolution of the bank, especially today, there’s so many changes over the past, let’s say, five years with all the digital initiatives that a bank can operate much more efficiently. So it’s important to take that into consideration. So the target isn’t to increase expenses.

We’ll continue to look for new areas and where we can improve, and we’re doing that. But it’s a lot of incremental changes. Today, we’ve implemented a lot of changes in terms of even purchasing areas where how we purchase different products and services from other companies. We we’ve implemented a lot of changes, which has helped improve the indicator, but not necessarily we’re planning to move to 42%. We’ll continue looking to improve and and be better.

Conference Moderator: Our next question is from Yuri Fernandes from JPMorgan.

Yuri Fernandes, Analyst, JPMorgan: Thank you, Rodrigo. Thank you, Pablo, and congrats on another very good quarter. I have a few questions as well. Maybe I’d like to start with your loan growth outlook. I know you have a guidance to grow slightly above industry and for the industry, you’re talking about 4%.

This is below the nominal GDP, right? You just revised the GDP up to 2.3 inflation should be, I don’t know, 3%, 4%. So industry is still growing below nominal GDP in Chile and maybe you grow slightly above the industry. My question is why not higher appetite? Like when should we start to see better loan growth here for you?

Because my concern is that once inflation normalize and you are growing your loans at a very timid pace, like four percent, I don’t know where the revenue will come from. And then I have my second question regarding fees. Like fees, they have been saving the day. These are growing some 8% year over year. This is way above loan growth.

This is above the number of clients growth. So I would like to explore a little bit more the C line. How what is the outlook for the fees? Like if you believe this can continue to grow above the loan growth, above the number of clients. I think this year, it has been a lot driven by your mutual funds, right?

I think you put this in the release. Even in the mutual funds, see fees growing faster than AUM. So maybe, I don’t know, performance fees, a little bit of price regarding your mutual funds. But also checking accounts, right? Checking accounts have been growing a lot, like 11%.

This is also above the number of clients. So I don’t know. I think you see there is a component of pricing in most of those things. And I don’t know how sustainable those things are. So if you can help me to understand, one, loan growth, because I think this is the mother of many of the revenue lines, And two, fees, like how fees can evolve going forward because they have been very good and congrats on that.

But my concern is that how sustainable this good pace is. And if I may, just a follow-up on fees regarding the costs. We saw an increase on your credit cards loyalty fees. If you can explain a little bit what what were those campaigns? What is your credit card strategy?

I think this is an entire other topic, but I I would love to hear your view on the credit card operation as well. Thank you.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: This is Rodrigo Aradena. I’m going to take the first question. In terms of the loan growth, what we have today and what we also believe is that there is like a decoupling between the loan cycle compared to the GDP growth. In fact, if you analyze, for example, the loans to GDP ratio, Chile, that number today is around 76, 77% in in terms of the nominal loans compared to the nominal GDP in pesos, which is a number that is well below the numbers that you we used to have in the past. It’s worth to mention, for example, that before the pandemic, that number was higher than 8080%.

During the pandemic, that number was even close to 90%, but we are now less with the season of temporary factors that increase that temporarily that that ratio between loans to GDP. But all in all, we think that 73, 77% is below the numbers consistent with the fundamentals, but there are some explanation on that. When we analyze the chart that we showed in the in the in presentation, we can see that there is a very important delay in terms of consumer loans, which are nearly 20% in real terms below the the level that we that we have by 02/2019. But there are some explanations behind that. For example, the very high levels of interest rate that we have until until the previous year and also the excess of of liquidity that negatively affected the demand for consumer loans.

And also, have an an important delay for commercial loans, bad explanation of that’s placed with very weak investment growth that we’ve seen during the last year. It is also important to to to keep in keep in mind that despite the positive economic growth that we had last year, the main driver of that growth was related with exports rather than domestic demand. In that aspect, we have to remember that the key driver for loans is related with the domestic demand. And in this area, we are more optimistic for the future since today we have a better lean leading indicator for investment, a similar story we have for. So, basically, this year, we are expecting that at the better domestic demand with at least partially offset the the weakness in total exports.

So that’s why we’re expecting a gradual recovery in in loans for the future. What is reasonable to expect in the in the long term? It’s reasonable to expect an elasticity of loans to EVP of a number of around 1.5 times, something like that. And sometimes, would be higher. In not in more negative times, it could be a bit lower, but the elasticity that we have today is not sustainable for the long term.

And so, basically, what we have today is an important delay decoupling. But in the future, we it’s reasonable to expect, you know, a recovery in both commercial loans and consumer loans, which are our main targets. Paul? Okay. In terms

Pablo, Executive, Banco de Chile: of fees, what we’ve always mentioned is that fees should grow in the mid to high single digits, which is completely in line with customer growth plus low inflation. Customers have been growing between around the five to 7% over the last decade. And that continues to be the case. If we look at current accounts, we continue to grow strongly. One of the reasons why we’re very optimistic about the plan accounts was precisely this to expand our customer base so that we could have new customers entering the bank that we could cross sell to other products and services.

In fact, 30% of the new current accounts come from plan accounts, plan existing accounts. So this is an important area where we’ve seen improvements. So these customers are also we’re offering credit cards. The customers enter Banco de Chile. They receive, obviously, current account package, and these also drive fees.

So in this quarter or this first half of the year, the fees have been driven through by AUM growth because customers are searching for higher profitability from their investments. We’re coming from a high inflationary period. So the the the in time deposits, for example, were earning at one point around 11%. And today, the overnight rate is around the 5% level. So things have changed, and we’ve seen a change in terms of how customers are investing their liquidity, and that’s moved into the mutual fund business, and we’ve made new products to also enhance that offering.

So moving forward, what we see is a customer base that should continue to grow and continue to be driven in part by new fund customers moving into Banco de Chile and as well as cross selling across the bank. So working together with the subsidiaries and Banco de Chile to cross sell the customers in the subsidiaries in Banco de Chile and Banco de Chile and their subsidiaries. So so the 8% growth that we’ve seen here today is reasonable in terms of the level of of customer growth, what we’ve been doing in terms of cross selling, and it’s important to remember that fees are are are charged based in US, so inflation plays a role as well. So mid to high single digits makes complete sense.

Yuri Fernandes, Analyst, JPMorgan: No. Thank you. Thank you, Pablo. Thank you, Rodrigo. If I may, just a follow-up on on fees because it’s one of your strategies.

And I think part of the competence you have is that you always create like new avenues even whenever we don’t see long growth, and I think this is part of your answer. Just on the acquire, on when Chile Pago like the Pago’s, I think it’s target for the year end. Is there any update on that? Like any KPI you can share? Like any goals you have?

I think like I read an interview And given you are entering the game a little bit late, maybe you were less positive, but maybe this can be good for fees as well. So if you can comment on the Pago also, like, the in Chile Pago, would be interesting. Thank you.

Conference Moderator: So yes. So BIPAGO Banco Banchille Pago, it’s an

Pablo, Executive, Banco de Chile: important initiative that we’re planning to launch in the last quarter of this year. So this strengthens our position as a full service financial institution to all of our customers. So obviously, now we can give them a complete suite of products and services to these business customers. Where it’s focused is SMEs and middle market companies, where we have a very strong position. So it’s an area that we can cross sell, give this value added product to these customers with a bunch of the Chile infrastructure.

So this is very important for us. So based if you look at the size of our SME book, we have about 15%, a little bit less than 15% of total loans come from SMEs. There’s a 150,000 customers there. There’s a huge growth potential that we have KPIs, we don’t have anything to share today, but we don’t think that we’ve entered the market late.

We’ve been waiting to see a clear understanding of what the risks and changes, regulatory changes that were occurring would would happen and how we could implement an acquiring business ourselves. So we think that similar to the final account, which we proved, which was also considered that we are entering late, We proved very successful. And today, we have one we have almost 2,000,000 customers from Fund, and it’s one of the most important drivers of current accounts growth. So we’re we’re we’re confident with this new acquiring business.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: Judy, sorry. Just clarifying, reinforce the idea, despite the decoupling that we have this year in terms of loan growth compared to the unit growth, we expect a normalization in the future. So if we assume, I don’t know, a TCP of 1.5 times, for example, the of loans compared to the UDP, it’s reasonable to expect that if the economy view, for example, a number between 22.5% real terms and inflation rate between 33.5%, it’s reasonable to expect in that scenario loan growth in nominal terms of high single digits. Just to be clear, what you expect for the future.

Yuri Fernandes, Analyst, JPMorgan: Thank you, William, for the clarification.

Ernesto Gabelondo, Analyst, Bank of America: Perfect. Thank

Yuri Fernandes, Analyst, JPMorgan: you both.

Ernesto Gabelondo, Analyst, Bank of America: Thank you, guys. Congrats.

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

Conference Moderator: Thank you very much. Our next question is from Daniel Moraardila from Credicorp.

Daniel Moraardila, Analyst, Credicorp: Rodrigo, Pablo, and thank you for the opportunity to ask questions. I have just one question regarding loan growth. Considering that we are in a challenging scenario for loan dynamics, I would like to understand what is the short term strategy to grow above the industry level? What segments or products are you planning to grow? And also, the recovery that we are expecting in the future, do you plan to change the longer strategy?

Or it will be maintained as the same as we should see in the short term?

Pablo, Executive, Banco de Chile: Pablo here. So for in terms of loan growth, what we’re expecting or what our focus is, is we’re focused on high potential segments. So those high potential segments is SMEs, consumer and consumer lending. And in terms of SMEs, we’re targeting businesses with obviously scalable models, strong credit profiles. This is a segment that, as mentioned, as I mentioned earlier, we have just under 15% of the total loan book is dedicated to the segment.

We have very high quality customers here, and it’s a customer base that we’re interested to continue growing. We work a lot with these customers. We hold a variety of conferences. We have very strong relationships, and BAN Chilifago is another tool that we’ll be offering in the fourth quarter for these customers, which will continue strengthening the relationship. So this is an area that historically has been less penetrated in Chile.

It became a little bit more penetrated during the pandemic, but we still consider it to be there, one of the areas that will have the fastest levels of growth in the future. Today, the demand is a little bit slower. But as the economy improves, we should expect an improvement in this segment together with the corporate segment. In consumer lending, we’re focused we’re a bank that’s focused in the more affluent, the more upper income and middle income segments. So we’re very focused in the type of service services that we offer these customers, how we’re offering, and we’re using a lot of digitalization as well in order to grow consumer loans across the board, but we’re more focused in the upper and middle income segments.

So what we’ve seen today is some banks gaining a little bit market share, but they’re focused on a little bit different segments than we are. And we’ve been bringing out new innovative products, which have been driving these client acquisitions and making new cross sell opportunities. If we look at a little bit of the digital initiatives that we’ve done in order to because, obviously, in this segment, it’s important to be a bank that offers a very high quality service across all all channels. So today, we’re a bank that has implemented a lot of front office digital solutions. Most of the transactions are being done online.

For example, over 90% time deposits as well is very high, over 80%. Even mortgage loan applications, we have a very high level of 50%. So we’re a much more digital bank than we were ten years ago, obviously. So this is also helping to grow this segment in consumer lending. And obviously, as the economy improves, we should expect to see an improvement in the multinationals and large corporations in Chile.

But that has had very little demand due to the economic and political situations that we’ve had over the past five years.

Daniel Moraardila, Analyst, Credicorp: Perfect. Considering do you expect that this change in the loan mix to be significant and offsets the normalization of inflation and also the normalization of interest rates. On margins, if we see that you are planning to grow in SMEs and consumer, I’m wondering if we could see that NIM could be maintained around 4.7%, 4.8% even with the normalization of inflation and interest rates.

Pablo, Executive, Banco de Chile: Remember that this year, we’re expecting only inflation of 3.4% in terms of variation of The U. S. That 0.4% or 0.5 above the level of the long term target, it only represents around 10 basis points. So our our expectations is that net interest margin should be around the levels that we have today, maybe slightly less than 4.8, but around four point four point five to 4.7 is reasonable depending on inflation. It also depends on loan mix is very important.

So today, what we’ve been seeing is a lot of growth in the industry and us in mortgage loans, which has lower net interest margins. And what’s happened over the last fifteen years is the mortgage loan portfolio grew significantly, and that brought down significantly together with other market factors, net interest margins to what we saw prior to the pandemic. And today, thanks to market factors, we have these higher levels of net interest margins. But the rates in terms of interest rates, we think that it will probably remain higher for longer. Maybe Rodrigo can can mention about the long term interest rates for overnight rates that he expects in the in the long term, medium term.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: So so, basically, the the main the main question that we have today is, okay, what’s gonna be the main parameters in the in the long term? Today, with the information we have today, the in the in the next during the next year, we’re gonna have an interest rate above the levels that we used to see, for example, before the pandemic, a similar economic growth. But at the at the end of the day, we have a different mixed trend that we have to evaluate. So that’s why we we have mentioned the that inflation probably will will be lower in the in the future, but we don’t have an important gap in inflation today compared to we we we’ll have in the in the future. Interest rates, probably, the terminal rate will be around 4%.

Today, the rate is at 4.75%. We’re but on the other hand, we’re expecting a recovery in loan growth. So that’s why these opposite trends will likely be that the result of that mix trend will be a similar level of stable means as Carlo said before.

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

Neha Agarwala, Analyst, HSBC: Hi. Congratulations on the results, and thank you for the very clear and detailed answers through the call. Just quickly

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: k. It looks like

Conference Moderator: Nihad dropped. Perhaps we can take her question once she dials back. Our next question is from Andres So to from Santander.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile0: Hi, Rodrigo, Paulo. Thank you for the presentation. Most of my questions have been already addressed, but I still have a question regarding dividends and capital position. Previously, on this call, mentioned that your target for core equity Tier one was to be 100 basis points above the minimum regulatory requirement or at least 100 basis points. And you are way, way, way above that level at this point.

And that, in addition to the additional reserves that you have in your balance sheet, that is, as you mentioned, 600,000,000,000. So I would like to understand your thoughts around the possibility of an extraordinary dividend and what will need to happen for that to be considered as a potential for investors.

Conference Moderator: Andres, this is Daniel Del Arce.

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: Extra dividends or payout ratio higher than 60%, that is our long term view with respect to dividends, be only possible under some specific circumstances like we have had in the recent years. It’s only possible under consistently lower than expected growth and also higher than normal net income. It’s also important to know that at least we will always retain the inflation effect on equity or on capital every year. So if economic activity and private investment, in particular, remains subdued in the midterm and our financial performance keeps strong, we cannot rule out to temporarily decouple from our midterm view in terms of dividend distribution, as we have done in the recent years. And that will be the during 2025, our results have continued to consistently be our expectations and loan growth also remains tempered and subdued.

However, any change from this baseline scenario in terms of dividend payout is something that needs to be determined by our shareholders every year.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile0: Absolutely. Thank you, Daniel. And regarding the additional reserves that you guys have in the balance sheet, it’s much higher than any other bank in Chile. And despite having much better asset quality indicators, what are your thoughts around that position is going to be released gradually and also risk pressure? Or is that a potential source of dividends for shareholders?

Pablo, Executive, Banco de Chile: The idea this is Pablo speaking. The idea behind the additional provisions is to use in negative cycles. We did release them earlier this year for the change in models for the consumer loan book. Looking forward, obviously, the Board of Directors makes these decisions and analyzes based on circumstances that we’re seeing. So what we’ve mentioned in the past is if we don’t need these additional provisions, a portion of these additional provisions could be reversed and paid out, but there’s no clear time frame regarding that.

Today, there’s still a lot of uncertainties in terms of the economical, global, macro scenarios, geopolitical. So today, we don’t have any new information, but it’s something that’s taken into consideration every year. Releasing these provisions slowly hasn’t been or a payout of these additional provisions hasn’t been discussed, but it’s something that we have to continue looking forward.

Conference Moderator: We’ll get back to Neha Agarwala from HSBC.

Neha Agarwala, Analyst, HSBC: Can you hear me now?

Yuri Fernandes, Analyst, JPMorgan: Yes, we can hear Perfect.

Neha Agarwala, Analyst, HSBC: Thanks so much. Congratulations on the results, and thank you for the detailed answers to the call. Just a quick one. What kind of cadence should we expect in the coming two quarters for this year? Any big moves that we should be mindful of to create volatility?

And second, just on the on the upcoming elections, any uncertainty that you see depending upon which candidate is finally go through the elections and wins the presidential election? Any kind of risk that you see from the upcoming elections? Thank you so much.

Pablo, Executive, Banco de Chile: I think one of the things to take into consideration is how the evolution of inflation will move from here on. The last figure that we had was a negative level of inflation. So it will be interesting to see the next print, which comes out in a couple of days to see how that will affect the third quarter results. This will be very important. So depending on that, we’ll see how our bottom line will be affected for us in the industry in terms of interest income from inflation.

I think that’s the most relevant area. Other than that, what we’re expecting in line with what we mentioned in the guidance is a return on average capital of around 21% and net interest margin that will drop a little bit because there’s an expectation that this inflation number will drop the third quarter figure a little in terms of inflation for that quarter, a NIM of 4.7% efficiency, 38% and the cost of risk, which we’ve reduced to 1%, around 1%. And this is because of the very good performance that we’ve had in the first half of the year. And we’re expecting that this trend should more or less stay similar. We don’t see any large changes in the immediate term in terms of risks.

So other than UF variations is what we’ve taken into consideration for our guidance for this quarter. And Rodrigo will answer the other question. Sure. Thanks for the question, Neha.

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: We know that the political environment is getting more and more important everywhere. In our case, I think that it’s critical to be aware that the political system in Chile is based in important counterweight, be between the government, the congress. Also important to keep in mind that any important reform in Chile has to be approved by the congress, both cameras in the congress that is valid, for example, for the case of changes in taxes, changes in in the constitution, etcetera. So so that’s why I would say that it it it will be very important to analyze the results not only of presidential election, but also in terms of the composition of the congress, even the best even the very important role that the congress has in Chile. So far, what we’ve seen is that there is a broad consensus in in the country in the sense that it’s very important to address the important challenges in economic growth, especially today, even the growing uncertainty that we have in the rest of the world.

Also important to address different challenges on the labor market in terms of reviews, the bureaucracy, the repays, etcetera. So far, we haven’t seen any discussion related to structural changes in the economy. But, again, the the the main uncertainty that we have today for the countries related with the global economy, related with with the evolution of the copper price, the evolution of growth in our main three partners, which are China and The US. And, locally, I would say that, the it’s not only a matter of who’s gonna be pressing in Chile, but also the composition of the Congress.

Conference Moderator: Our next question is from Ewald Stark from B. C. Inversions.

Ernesto Gabelondo, Analyst, Bank of America: Well, your current basic capital ratio is really high, especially compared with what’s required by the regulator. So this is basically a result of almost zero loan growth in the past couple of years. So my question is, what’s your targeted basic capital ratio once loan growth reactivates? At least where do you feel comfortable?

Conference Moderator: Well, this is Daniel Del Arce.

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: Well, basically, as long as the economy reactivates in the future, we expect to use our capital for doing business, of course. And accordingly, we aim to always maintain a favorable gap of at least 1% of our regulatory limits for all of our capital adequacy ratios. This is basically the what we are seeing in the future, but there is not a specific time frame for that, of course.

Ernesto Gabelondo, Analyst, Bank of America: Okay. But the Banco de Chile traditionally has do you hear me?

Rodrigo Aravena, Chief Economist and Institutional Relations Officer, Banco de Chile: Yes. Yes.

Conference Moderator: Yes. We can hear you.

Ernesto Gabelondo, Analyst, Bank of America: But Banco de Chile traditionally has had has always complied with capital ratios and other requirements well above what’s the minimum required ratio. So do you have, like, any guidance about where where basic capital, like, be in the next couple of years?

Daniel Galarce, Head of Financial Control and Capital, Banco de Chile: Well, in the next couple of years, it will depend on the on the on the economic growth and also loan growth, of course, on how we can use our our capital for doing business. But basically, if if everything works as we speak, this is the economy reactivates and so on. The minimum amount or the minimum ratio of capital that we expect to comply with is to be at least 1% over total regulatory limits.

Ernesto Gabelondo, Analyst, Bank of America: Thank

Conference Moderator: you very much. We would like to thank everyone for the participation today. I will now hand it back to the Banco de Chile team for the closing remarks.

Pablo, Executive, Banco de Chile: Well, thanks for listening to the call today, and we look forward to discussing our third quarter results with you in the future. Have a good day.

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

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