Good afternoon, and welcome to Banco de Chile's First Quarter 2025 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 Aravena, Chief Economist and Institutional Relations Officer; Mr. Pablo Mejia, Head of Investor Relations; and Daniel Galarce, Head of Financial Control & Capital. Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company'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 will now turn the call over to Mr. Rodrigo Aravena. Please go ahead.

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 strategic project during the first quarter of this year. Once again, our bank has affirmed its strong position in the Chilean banking industry, reaffirming its leadership in different areas. In the quarter, the net income was CLP 329 billion, surpassing our peers and achieving an ROAE of 23%. As we will see later in this conference call, these outstanding results were explained by strong margins, improved asset quality and enhanced efficiency levels. This performance becomes particularly important given the increasing uncertainty of the macroeconomic environment due to the revised foreign trade approach adopted by the U.S. administration, which could likely reduce the global and even local economic growth in the future. Therefore, our solid fundamentals such as asset 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 macro environment. Please go to Slide #3. The Chilean economy has shown a recovery in recent quarters. As can be seen in the graph on the left of this slide, the activity posted an important increase in the second half of 2024 with a peak in the fourth quarter, when the economy grew by 4%. As a result, the country achieved an above-expectations 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…

Thank you, Rodrigo. Let's begin by turning to Slide #9, which provides a comprehensive view of our strategic framework and midterm targets. Together, they define our road map for sustainable value creation. On the left side of the slide is our strategy, structured around 3 key components: our strategic plan; our strategic pillars; and our purpose. Our strategic plan is built on 6 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, 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.…

[Operator Instructions] So our first question is from Yuri Fernandes from JPMorgan.

So I would like to ask maybe to Pablo regarding capital here for Banco de Chile. As you explained in the presentation in the slide, you have a lot of capital, right? You just paid dividends, but you are well above peers. I think CMF had some discussions on adjustments on marketing-related capital Tier 2 pillars. My question is the following, Pablo. With more visibility, let's say, we start to have more visibility, how Banco de Chile will deploy this excess capital, right? Should we expect at some point -- I know this is a recurring question for you, but should we expect more dividend payout for you? Should we see M&A? Should we see more growth? Just trying to understand. And if you can provide some numbers. I remember in the past, I think you used to say that 200 bps, 250 bps above the minimal requirement was somewhat the goal. So just checking if that continues to be the case.

Yuri, I'm here with Daniel Galarce, who will take this question. One second.

Yuri, this is Daniel Galarce. As we have discussed in the previous calls, we are aware that our current positive gaps in terms of capital adequacy and also our position in terms of capital adequacy as well in the local industry. Of course, our Tier 1 ratio, for instance, is 3% or 4% above the regulatory limit. And you have to consider that in March, that ratio decreased approximately 1% due to the dividend payment. As we have emphasized in previous calls, we aim to keep these favorable capital buffers in order to support either future organic growth or also inorganic growth if some opportunities can arise in the future. So in this regard, part of our current capital position has to do with both, subdued loan growth, of course, and also the profitability we have observed over the last 5 years, we have been -- 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 face and we have to face the final phase of Basel III transition. Of course, there are some pending regulations in the local market like the Pillar 2 regulation, which is still pending from the CMF side. And this can translate into further capital requirements for banks, including us. It's important to take into account that also the Chilean Central Bank has announced that probably the countercyclical buffer will convert to a neutral level as well of around 1%. So it's important to note that in terms of our capital composition, we are facing Tier 1 capital needs only with CT1 capital. So given that and due to the lack of a deep local capital markets in terms of AT1 and also the cost involved in AT1 issuances in foreign markets, we are assessing the possibility of optimizing our capital base in the future. But so far, we will face capital requirements of Tier 1 only with CT1. So due to that, the 60% dividend payout ratio is our baseline scenario for the future. And accordingly, extra dividends or a payout ratio higher than 60% would be only possible under certain circumstances, basically loan growth below what we are expecting now and/or results above what we are expecting as well. So if this doesn't occur, probably we will maintain our 60% dividend policy over the next years.

No, no. Super clear. This is a good problem actually to have. If I may, just a related question on this topic of good problems for Banco de Chile. The other common one we discussed is your higher allowances to loans when we add up the additional provisions, right? And this has been coming down gradually. So just checking the box here, if there's a number that you go for these, like if you feel comfortable with this returning below 200% at some point?

Well, as you know, the additional provisions -- this is Pablo speaking. As you know, the additional provisions that we accumulated were during the pandemic when the level of delinquencies didn't make sense in the economic cycle that we were 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 January of 2025, so CLP 69 billion, 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 industry-wide. We're significantly below the average in the industry. And we've seen slowing down or actually reversals in the -- if we look at year-on-year or quarter-on-quarter in terms of commercial loans 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 number has come down because there's a little bit higher NPLs, 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 ratio will be higher. But it's also important to mention that in the case of these additional provisions is that we're in a cycle 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 is affected, not that we're seeing something today, but if something could be affected in economic sector, customer base, et cetera, we have those additional provisions. So in the long term, it make sense or the medium term, it makes sense that we return to those levels that either we use them, that there's a use for these additional provisions, we maintain them or there's a reversal, as we've mentioned in other calls. But there's no clear time line when that will occur. And today, there's more uncertainties than there were 6 months ago. So it's something that we're comfortable with today.

No. Thank you, Pablo. But there is no number, right? Because this was closer to 400% back in the day. It's 250, as you said, just because of NPLs like your drop in nominal additional provision was very minimal, right? So it went up from CLP 700 billion to CLP 630 billion, it's fine, like but some of your peers, they increased this by 1/4, 1/3, by 1/2, right? So is there a number that you believe like 200% additional coverage, that's fine? Like is there a number that we should believe on this number going forward or not really?

If we look at the averages before the pandemic, we had numbers around 200%, but it was with a different level of additional provisions and NPLs.

Our next question comes from Beatriz Abreu from Goldman Sachs.

My 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 2025. So 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?

In terms of net interest margins, we did have a first quarter that was quite strong in terms of inflation and throughout the rest of the year, we're expecting that there should be, as long as the global economy isn't impacted materially in Chile, an improvement in terms of mix and the types of loans that we're growing. So there should be an improvement in terms of mix. We've been benefiting from the decrease since last year to this year in terms of spreads and the overnight rate, which has decreased, reducing the cost of our time deposits. So this has been translating into a slight change. But in general, the change in terms of our NIM guidance is more or less in line with what we had 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 in the year, Rodrigo can go into that, an overnight rate that was a little bit different from what we're expecting today. Rodrigo?

Beatriz, thank you very much for the question. Yes. 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 margin, especially in terms of inflation and interest rates. Even though in our baseline scenario, we are 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 in the rest of the world. And also these assumptions are based on an exchange rate hovering about the current FX, which is around CLP 940, CLP 950, something like that. So -- but we are aware about the uncertainty because we are facing a supply shock, where we have lower global growth but some pressures on inflation. So it's not clear what's going to be the final equilibrium. But at least for now, we think that it's reasonable to expect some adjustment, minor adjustment, I would say, in the interest rate in Chile, probably 75 basis points from now to the end of the year. We continue expecting a neutral interest rate in Chile of a number between 4% and 4.5%, and inflation will be lower in the future, converging probably by the end of this year towards 3.8% and probably in 2026, the inflation rate will be -- only in 2026, the inflation rate will be around 3%. But again, today, our main source of uncertainty in terms of the key factors affecting margin and profitability 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 seeing the economy or -- in Chile, the economy dropped as well. We're seeing loan growth for the industry dropping a little bit. So the guidance came down there 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 were expecting from the beginning of the year, which would be positive for the net interest margin, slightly less in terms of total loan growth. So what we're expecting is slightly above the levels of the industry, which the industry GDP expectation -- sorry, loan growth expectations are around 4%. For us, slightly above that, and that will 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 loans, probably a little bit more activity from SMEs than from large companies in general.

Our next question is from Neha Agarwala from HSBC.

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 a discussion about higher taxes, but I guess that's off the table for now. Is there a risk for that to come back? And my second question is on inflation. Like this year inflation, at least so far, has been running higher than expected. How do you see it in 2026? I believe if there's a steeper decline in inflation, that could put more pressure on margins for next year. So how are you protecting yourselves in view of that? And how much of that is being managed by the UF GAP that you mentioned during your opening remarks?

Thanks, Neha. This is Rodrigo Aravena. Thank you very much for your question. In terms of our concerns 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 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 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, even though the larger trade partner in Chile is China with 40% of the total export, the second largest trade partner is the United States with nearly 16% by the end of the last year. So the evolution of the trade policy, the new measures that could be adopted by the U.S. authorities, the potential impact in terms of economic growth of China is, at least for this year, our main concern in terms of the impact on growth for -- at least for this year. Locally, probably the most important event to monitor this year is related with elections. We're going to have presidential election in November this year. There will be a Congress election as well with a total change in the lower house, they have the Senate. So that's why we have to pay attention to the evolution of the discussion, the proposals, et cetera. Today, we knew, for example, that a very important survey was released this morning from CEP, Centro de Estudios Públicos in Spanish, that's the name of the company, which showed that nearly 50%, 52% of people, they haven't decided their preference…

So in terms of how we've been funding the bank, it's changed over the years, especially that our -- if you look at as an amount in terms of the UF GAP on the balance sheet, we're a larger bank. And then there's two parts to this. One is the structural part and one is the positions taken by the treasury. So the structural part is somewhere around the CLP 5 billion, CLP 6 billion and which means we have more assets than liabilities in UF. And there's a structural part from the capital and structural part from the demand deposits, which are in pesos. And that would be, the structural, CLP 5 billion to CLP 6 billion 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 gap on the balance sheet, and that's what we saw at the close of this first quarter. So how that will evolve 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 CLP 5 billion or CLP 6 billion. The rest is around -- is a treasury position, and that's based on expectations and temporary factors.

Could you please repeat the sensitivity that you mentioned earlier?

The sensitivity of a 1% change in the UF GAP. Today, we have a UF -- or at the end of the quarter, we had a UF GAP of CLP 9.7 trillion, so 1% change in inflation is CLP 97 billion in net interest income.

[Operator Instructions] Our next question is from Andres Soto from Santander.

My question is regarding your medium-term ROE target. I see on your presentation on Slide #9 that your medium-term target is to be top 1 versus top 2 right now. You're trailing 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 and considering your structural changes in terms of loan growth -- sorry, in terms of loan composition and in terms of expenses, also considering a significant drop in head count that we have seen since the pandemic. So I would like to understand if Banco de Chile is expecting to be able to deliver, let's say, around 20% or even above 20% ROE over the medium term considering that that's sort of the expectation that your main competitor has been stating.

Thank you, Andres. So in terms of our ambition, our ambition is to be the most profitable bank in Chile in all the cycles. Obviously, it depends on the cycle and what the expectations of each bank is for that cycle and return to growth of the economy. So that's our long-term expectation. Ambition is the most profitable bank. So we have the robust capital base in order to navigate the potential regulatory changes and to hopefully take 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 that will obviously promote an attractive ROE for us in the future. So I think that would be the most important to mention is that our ambition, our long-term ambition with everything that we're doing is to be the most profitable bank in Chile. For this year, we've revised our ROE forecast up or our ROAC forecast up to around 20% from the previous levels because of everything 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%, 1.2%, if we go back to the same mix that we had in the past. So the position of the bank today allows us to continue to grow in an important manner in the future, if that's available, and that will allow us to continue posting attractive returns.

And regarding the loan growth comments that you are making, what will be a reasonable number for loan growth over the medium term or even in 2026? 2025, you say it's going to be a lag between recovering private investment and that to be translated in terms of loan growth. But for 2026, can we expect high single-digit level of loan growth? Or what is the multiplier that you are seeing to loan growth once those factors abate?

I think there's uncertainties because of everything that's happening, much more today than there were 3 months ago or 6 months ago. And what we would expect is that there's a lot of piped up demand in the pipeline. So this could increase maybe higher than the levels of GDP/loan 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 scenarios on how that could occur.

Yes. Andres, thank you for the question. So I think it's important 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 ratio between loans to GDP, it's around 75%, around that, but it was before the pension fund withdrawal, before the pandemic, that number was between 85% and even 90%. So we've seen an 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 given the level of the GDP of Chile, given 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 in a contractionary level. So it's reasonable to expect a recovery of loans in the future. In terms of multiplier, of the elasticity, despite in the past, we used to see levels of around 2x, but today, the scenario is different. But it's reasonable to expect numbers higher than 1x, probably 1.4x, 1.5x. We don't know. It depends what's going to happen in the future. But if we assume that the economy could grow between 2% and 2.5% for the next year, plus an inflation rate between 3% and 3.5%, something like that, plus the elasticity, a more normalized elasticity of loans to GDP, it would be reasonable to expect loans for the system growing in high single digits over the next years.

Thank you very much. I will now hand it to Pablo and Rodrigo for the closing remarks.

Thanks for listening, and we look forward to speak with you on our next quarterly results. Bye.

This concludes the call. Thank you, and have a nice day.