Good morning everyone and welcome to Banco de Chile’s Third Quarter 2016 Results Conference Call. If you need a copy of the press release issued on Tuesday, it is available on the Company’s website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Senior Vice President of Institutional Relations; Mr. Pablo Mejia, Head of Investor Relations; Ms. Isabel Allendes, Investor Relations; and Daniel Galarce, Head of Financial Control. Before we begin, I’d like to remind you that this call is being recorded, and that 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 on the Company’s press release regarding forward-looking statements. I will now like to turn the call over to Ms. Isabel Allendes. Please go ahead.

Good morning, everyone. Thank you for joining our call today, where we will share with you our comments on Banco de Chile third quarter 2016 financial results. We will begin with the brief overview of the economic environment and our corporate strategy, followed by an analysis of Banco de Chile’s third quarter 2016 results. I will now turn the call over to Rodrigo Aravena.

Good morning, everyone. It’s a pleasure for me to share with you my comments on the Chilean economy and our consistent long term strategy. I would like to start with the macro analysis. Please turn to slide number 3. GDP continues growing slower than Chile’s potential rate. After GDP was up 1.5% in the second quarter, it would likely expand 1.7% in the third quarter. That said, the economy is expected to grow by 1.6% this year, below the 2.1% of service in 2015. On the supply side, as seen on the upper left chart, the mining sector has led the slowdown, while the rest economy mainly services has remained growing on average 2%. The demand side breakdown shows that investment remains weak, while consumption is still supporting the GDP growth, in part of the consequence of the Chilean labor market. As seen on the other right chart, the employment rate has remained stable around 7%, low level relative to prior year. In the last month, most of the macro analysis have been centered on two issues. First, the fall in the annual inflation rate, which dropped to 3.1% in September, as a consequence of the lower than expected 0.2% inflation in that month. As you can see in the bottom left chart, both headlines and core inflation has decreased. We think it has been a consequence of both the below trend GDP growth and the stability in the exchange rate as the weaker currency lift the CPI in the last two years. The second issue is the reduction in the fiscal spending growth analysis for 2017, which is expected to fall to 2.7%. It will be the third adjustment in a row as seen on the bottom right chart. This cut aims to offset lower total revenues as a…

Please turn to slide 10. We had another solid quarter of earnings, reaching a return average equity of 20%, which is equal to CLP145 billion. Only CLP6 billion below the level recorded last quarter and up CLP11 billion year-on-year. This excellent result has been met with in an environment of lower inflation and weaker economy. As you’ll see on the following slides, operating income amounted to CLP428 billion, 10% lower than the previous quarter due to certain extraordinary revenues and flat year-on-year. Operating income and fees continued growing both quarter-on-quarter and year-on-year terms, while NPLs improved. Efficiency ratio rose to 46% in the quarter, mainly due to lower inflation year-on-year and extraordinary operating revenues when compared to the prior quarter. We are also very proud to say that we continue leading profitability in the industry this quarter and we have the highest market share and net income of 27% in the quarter and year-to-date. Please turn to Slide eleven. As mentioned, operating revenues were down 1% year-on-year due to lower inflation revenues recorded under non-customer income. Inflation, as measured by the U.S. reached only 0.7% in the third quarter of 2016 versus 1.5% in the third quarter of 2015. More importantly, total customer income grew 6.9% year-on-year. This expansion in customer interest income of 7.1% was led by a 4.1% year-on-year growth in loans, mainly related to retail banking together with DDA growth by almost 5% year-on-year. Additionally, in spite of the high competition and overall slowdown in loan growth, we continue to improve lending spreads this year, ending the quarter at 2.96%, or 9 basis points above the same period last year. In terms of fees, this line item grew 6.5% year-on-year, with the greatest dynamism concentrated in the retail segment. In particular, we experienced growth in fees from…

Thank you. [Operator Instructions] And our first questioner today is Guilherme Costa from Itau BBA.

My first question is regarding your expectation for the Bank in 2017. Given the expectations of an improvement in the economy, how much we are expecting total loans could expand in 2017 and what segment should drive for growth next year? And my second question is about asset quality. We saw a good improvement in your NPL ratio, which is at the lowest level in the last quarter in addition to a material contraction in your cost of risk. So, I’m guessing what are you imagining for those lines in 2017? Thank you.

For the first question for banking loan growth for next year, in line with Rodrigo’s comments, we are expecting GDP to grow around 2% next year and that should be equivalent to around 4% real growth terms of total loans, in nominal terms around 6% to 7%. The segment should drive loan growth will continue be in the retail segment, specifically in mortgage loans and upper income individuals as well as SMEs. And could you repeat the second question?

My second question is about your trend for the NPL ratio and cost of risk in the next year.

Okay. And one last thing I forgot to mention is companies could be larger companies around 6%, maybe a little bit higher if things continue going a little bit better than we’ve seen in the past. In terms of NPLs, again going back to the Rodrigo’s comments, we’re expecting that next year, we should continue seeing a below trend growth, but and this should translate a little bit higher unemployment levels. So we’re expecting the NPL should rise moderately, but it shouldn’t be anything in the baseline scenario significant for now. But it depends on how we continue to stay in the country evolve in the next few months.

Our next question today is Carlos Macedo from Goldman Sachs. Please go ahead. Please go ahead.

Thanks. Good morning, gentlemen. Couple of questions. The first is a follow-up of that one, NPLs go up a little bit, where do you see your cost of risk going? Is it going to stay kind of where it’s been adjusting for the additional provisions or should we expect the cost of risk to increase next year as a result of higher NPLs? Second question, talk a little bit of competitive environment. I mean, we always hear about how everyone is gaining market share and nobody seems to ever lose market share in Chile. Could you talk a little bit about how you see the competitive environment for your main markets, the ones you focus on and whether you think that could be a headwind for the recovery and profitability over the next few quarters?

In terms of NPLs, probably the main thing that we should take into consideration that this year has been very good for large companies. We’ve had very low NPL levels for large companies and that could change next year. For cost of risk for next year, we should expect -- we have to take into consideration as I mentioned that we are still in a below trend growth and the employment rates are rising, we’ve had very good levels of risk in larger companies. So, it should be similar level without taking into consideration additional provisions next year the level of loan loss provisions that we have this year. Additional provisions are generally something that’s taken into consideration at the Board level as you saw earlier this year and it’s something that takes into consideration what’s currently happening in the economy. So, we’d have to sit back to put the cursor back. And the second question, can you repeat again?

The second question is just wondering what the competitive environment is your main focus markets just because it seems everybody is focusing the same thing and everybody is gaining market share.

I think in the competitive environment, what we see is certain areas in the country that have available space to continue banking. One of the areas that we see that has significant room to continue growing is asset base and the middle and upper-income individuals. And how we’ve been doing that, well, first, SME is very low penetrated in Chile. If you look at loans to GDP, it’s something less than 10%. So, it has very low penetration. It’s something that there is a huge advantage in the future. In the middle and upper-income segment, you have consumer installment loans, you have credit card loans, and really we have a very large customer base, which we are growing through these customers currently, and always taken into consideration a good risk and return relationship in this growth. And in terms of wholesale, what’s happening in the wholesale, we’ve lost the market share in that segment, again related to risk and return. The levels of competition there are very high and the demand for loans is very weak. So, we’ve seen a low spread, which have made it not attractive for us to enter into those deals at this time and last time we have seen a little bit of a loss in market share in wholesale.

Okay. But generally when you talk about upper-income, you see there is potential and you’ve been doing a great job, you’ve been able to maintain your market share and actually push through in that segment. Did I understand correctly?

We have continued growing in that market. A lot has been with the cross-selling. A lot of our growth is through pre-approved loans. Products that we have with customers well above 50% is with loans to our current customer base.

Okay. All right. Perfect. Thanks, Pablo.

We also have the largest market share in the upper-income individuals segment in Chile with one of the largest branch networks in Chile. So, we have the scale and we are where the customers are.

Our next is from Tito Labarta from Deutsche Bank. Please go ahead.

Hi, good morning, Rodrigo and Pablo. Thanks for the call. My question is in terms of your outlook for margins. You mentioned just like the inflation around 3% and there is room to cut rates. Just want to get a sense of how you think that’s going to impact your margins going forward, also kind of following up on Carlos question about competition, how competition crossover impact spread? So, if we take all those things together, what should we expect for margins going into next year? Thank you.

For the net interest margin, we’re expecting something probably similar to what will end this year. It should be around the level of 4.3% this year. It’s important to mention that this year we had an early redemption of bonds, which affected net interest margin. So that could partially, at least partially offset the effects of the slightly lower inflation and the slightly negative effect of lower overnight rate on margins. But one of the main things that we’ve mentioned in the presentation and as you can see on one of the slides, we’re always, we’re being very focused and continuing to try to improve spread. So, as you see year-on-year basis, we’ve increased the spread about 9 basis points and we expect that we can continue our, we would like to continue improving the levels of spreads, especially in order to compensate these negative effects of lower inflation and the lower overnight rate.

Okay, great. That’s helpful. And then just a separate question in terms of the expenses, kind of growing in the high-single digits, what kind of growth are you expecting in expenses?

For next year, we’re expecting, the goals or the targets for expense growth is to maintain expense control pretty fast, would be in the lower single-digits, so 3%, 4%, 5% is reasonable.

The next questioner today is Domingos Falavina from JP Morgan. Please go ahead.

Thank you, gentlemen for taking my call. And I think I have also an additional question on asset quality. Numbers were at least in my view surprisingly good and we do see you increasing the coverage ratio, and when we look at your allowance to past due, it’s at 1.95 times. My question is up to which point are you going to increase the coverage ratio? When are you comfortable to then provision less sort of letting this flow through to earnings?

The coverage ratio, we don’t have a target for coverage ratio. The coverage ratio is a product of our model. So, if you look at our history, we’ve been relatively stable around the 2 times. And one of the things that we saw this year is that we’ve had a very good performance of our Company segments, large Company segments.

So basically you believe that credit costs should remain relatively stable, because you anticipate a little bit of a wholesale duration next year and for semester is strong?

The wholesale, there should be a little bit -- it’s difficult to see next year that had such good levels in the wholesale segment and we should expect in line with higher unemployment rates and NPLs should also increase something next year for the retail segment moderately.

So and then you bring down a little bit of coverage, because you said I think that credit risk should be flat year-on-year, so if you have a deterioration on NPLs, you coverage should slightly go down next year.

The thing is that the coverage ratio, NPL, non-performing loans is like a lag indicator. So, our provision models taken more into considerations than just overdue loans. So, sometimes it can be a little bit of an effect because of that.

Our next questioner today is Ernesto Gabilondo from Bank of America Merrill Lynch. Please go ahead.

We’re looking of what happened to other countries in the region, it appears that every time, there are presidential elections, there are some delays in projects. Now, if you add to this context lower government investments to commit with the fiscal deficit, do you think that that will have an impact in the credit demand of large corporates next year? And on the other hand, are you expecting for the Chilean peso next year considering potentially lower interest rates, while the Fed will be moving in a different direction?

One second, please.

So, first of all, it is very important to highlight here that we are expecting an improvement for the next year but still bit we’d have below trend growth. It is impact of basically the main element behind this more constructive view for the plan [indiscernible] for the next year is based on the improvement in the current scenario, mainly in Latin America. So, in other words, we are comfortable if Latin America we’re similar next year relative to this year. We would fail in, I think, for example the 2% growth in Chilean economy next year. I think it is perhaps one of the more important factors behind our more constructive view of the Chilean economy for the next year. In terms of the Chilean peso, we expect a weaker currency for the next year, its performance [ph] between 680 to 687 [ph] mainly because we are expecting our reduced monetary policy in the next year. Basically, we would expect the Central Bank to begin a decent cycle in the first quarter of the next year after the Fed to resume the pricing cycle, particularly we are expecting the Central Bank of Chile to reduced interest rate by 25 basis points in January, February next year and more 25 basis points in the second quarter. And at the same time, we are expecting that the Federal Reserve to continue the tightened cycle. So, I would hope -- we expect a weaker currency for the next year.

Our next questioner today is Carlos Gomez from HSBC. Please go ahead.

Can you walk us in [ph] terms of tax rate this year and next year? Thank you.

The effective tax rate this year is about 14% and probably we will have something like 15% next year.

[Operator Instructions] Our next question today is Sebastian Diego from Credicorp Capital. Please go ahead.

My question is related SM Chile. Do we have any additional information regarding the proposal to the Central Bank? Can we expect a new proposal or a new offer or is there any new caller on that front? Thank you.

In terms of SM Chile, we can’t really give much guidance about it because it’s something related to one of our shareholders at the Board level. So there hasn’t been any new information and material fact published in the superintendence. So right now, all the information that’s public is what we know.

It looks like we have no further questions. So, this will conclude our question and answer session. At this time, I would like to turn the floor back to Banco de Chile for any closing remarks.

Well, thank you for joining our call today and we look forward to having you in the next results for the yearend. Thanks. Bye.

Thank you. This concludes today’s presentation. You may disconnect your line at this time and have a nice day.