Good afternoon, everyone. And welcome to Banco de Chile’s Fourth Quarter 2020 Results Conference Call. If you need a copy of the press release issued yesterday, it is available on the company’s website. Today with us we have Mr. Rodrigo Aravena, Chief Economist and Senior VP of Institutional Relations, Mr. Pablo Mejia, Head of Investor Relations and Daniel Galarce, Head of Financial Control. Before we begin, I would 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 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. Thank you for joining this conference call today, where we will present the financial earnings posted by Banco de Chile during the last quarter. We have divided this presentation into three parts. First, I'll discuss relative to the main economic trends and our forecast for this year. Then, we summarize the main achievements and key advances in our strategic pillars. The final section includes a review of our financial results late in the fourth quarter, and consequently, during the full year. Let me start with a brief discussion of the Chilean economy. Please move to Slide number 3. As the IMF recently said, 2020 was a year like no other. The entire world was totally affected by pandemic that can be comparable only with the Spanish Flu of 1918. In order to review the spread of the virus, several authorities implemented strong sanitary measures and mobility restrictions, leading to the worst recession, at least in the last century. All in all, the global economy probably contracted more than 3% in the last year. Chile has a similar trend, as the economy was affected by the global recession and the negative impact of the pandemic. The GDP fell 6% in a year, led by substantial contraction in the second quarter. Nevertheless, the resilience of the Chilean economy is positively compared with most of Latin American countries, as reflected by a robust recovery and better expectation for the future. On the whole, this recovery has been led by the joint contribution of three main factors, easy mobility restriction, expansionary fiscal and monetary policies and to a lesser extent, the temporary impact of pension funds withdrawal on consumption. I will go over the factors later in this presentation. As can be seen in this chart on the top left, GDP posted…

Sorry for the interruption. Just in case, for the people that may be having trouble seeing the presentation, if you could just refresh the slide presentation on the page and they'll pop up again.

Okay, thanks Pablo. So, as I was mentioning about the banking industry, about the loan growth, okay. I'd like to mention that the most intense growth was seen in consumer loans, which fell by almost 14% over the last year, in line with the filing percent that did the Central Bank survey that, with exception, while the fourth quarter has shown a weaker supply and demand for loans, as you can see on the chart on the bottom left. Nevertheless, loan demand for mortgage and consumer loans has risen sharply in the fourth quarter, while SMEs and corporations have normalized due to lower demand for COVID loans and a reduction in excess liquidity levels. We believe this indicates that we will begin to see an improvement in loan growth during the year, in line with a better evolution of economy. In terms of results, the Chilean banking industry focused on net income of CLP607 billion in the fourth quarter, excluding Itau figures, which is the highest level recorded during the year, due to high inflation and lower cost of risk as shown on the chart to the right. 2021 will probably be a transitional year for the industry. It is not yet totally clear how the pandemic will continue affecting the economy, but we think it's reasonable to expect that loan should grow in line with GDP growth of 8% nominal, and cost of risk should return to the levels seen pre-COVID towards the medium term. Before passing the call to Pablo, to discuss our strategic advances and financial results, we want to highlight some achievements that we obtained during 2020. Please move to Slide number 8. Once again, we ended the year as the leader of the industry in many aspects, regarding our financial figures and social initiatives. First,…

Thanks, Rodrigo. Please move to Slide number 10. Throughout our history, we have been able to be being very successful in providing attractive returns to our shareholders through a proven track record of consistent and robust results. We aspire to continue doing so and we truly believe that this is the only way to maintain our lead position to continue to be the most sustainable bank. To do so, we're continually reinforcing three key areas of our long-term strategy, digital transformation, efficiency and productivity as well as ESG. Strengthening these key areas will allow us to support our success in the long term and overcome future challenges. Please move to Slide 11.The pandemic has accelerated the use of technology and the banking industry has been part of this change. During the past year, we confirmed a leadership in digital banking by successfully managing a very important increase in the usage levels of our digital channels by processing over 400,000 loans online to support our customers’ liquidity needs. Additionally, we innovated in several fields, updating all of our main online platforms, bringing more functionality, agility, inclusion and security to our channels and then integrating analytics tools, which provide us with valuable information to better understand customers’ preferences. Among the valuable advances in digital banking in the second half of 2020, we released our new digital bank account called Cuenta FAN. This account was created through a new methodology that allows us to design and add new complements easily with marginal costs. Cuenta FAN account offers many benefits to customers in all segments of the population, because it focuses on bringing new clients to Banco de Chile, with all the advantages that our current customers already enjoy. For this reason, we've seen an important demand to open this accounts from low income…

Thank you. The floor is now open for questions. [Operator Instructions] The first question is from Yuri Fernandes with JP Morgan. Please go ahead.

Hi. Pablo, Rodrigo, thank you very much. I have some question on the strategy of Banco de Chile regarding consumer loans. I guess with a FAN account, maybe the bank will return stronger to this market I guess CECL, USD, Credit Chile years ago. This has been a market the bank has not been focusing a lot. So I would like to understand if this is correct. Like this is part of your core strategy. Now the bank want to be more aggressive on consumer loans maybe moving as likely to the lower income segments. And if that's right, how do you see competition there? Because we see all the banks doing a similar approach. Like something there we slice and super digital you have match who’s shy we have like maybe the retailers, right? How do you see competition there? Like, how much should we expect the customers upfront to keep growing? I don't know like a little bit more of color on the consumer side. And I have a second question regarding margins. This year, your NIM ended at 3.5, this is about 50 bps lower than your main peers, than Santander Chile. And when we look historically, the name of Banco de Chile and Santander Chile, it has always been very close, right, like 10 bps. Sometimes you have higher margin sometimes Santander Chile having higher margins. And I guess the message you had in the call is that maybe margins pressure may continue a little bit in 2021, so maybe it will still come down from this 3.5. And when we take your peer message, they also point to some decrease but as you said, like some marginal decrease. And my point is, why now in 2021 should we see a bigger gap between your margin and your peer? Why should we not expect the Banco de Chile to catch up in the margins versus your peer? Thank you.

Thanks, Yuri. So, in terms of our strategy going forward, our strategy is today being focused on growing our customer base using the Cuenta FAN. So the Cuenta FAN is a product, which is something that was recently launched, as mentioned. We've grown strongly with over 170,000 new customers in less than around one quarter, which is super relevant, if we consider that our customer base as current accounts is about 1 million customers. So the interesting thing of this account is it permits us to cross sell these customers quickly. Cuenta FAN, we are developing in order to cross sell these customers quickly into Banco de Chile customers, where they can maintain their current account their bank account number and transfer that as a current account. Plus, there's a lot of incentives for these customers to come into the bank, which is not only lower income segments, which maybe some players in the industry are focusing on. And for us is to bring up these new customers into Banco de Chile, which can be from all customer segments, because we're providing them with the same loyalty program. So the idea for us is to pick up market share in consumer loans, but it's more focused on the middle and upper income individuals and to bring new customers into the bank, using this new Cuenta FAN, which is attractive for all the customer segments. Thanks for the initiatives, we're not they use the same apps, they use the same loyalty program, et cetera. So that's been the main driver for customer growth today. In terms of margins, what I can say in terms of margins is that what we've mentioned in the presentation and in the press release, that's one of the pressures on margins has been from a variety…

Super clear, Pablo. And regarding the consumer loans, so the thing is it's reasonable to work. I don't know, you said maybe 8% nominal for the industry and you're growing slightly higher. Do you think like 10, 12, it's reasonable for consumer loans growth this year?

Slightly above 8% in low double digits. It really depends on the evolution of the economy, the outcome of the vaccines, how quickly the economy and unemployment improves. So there is a possibility that 2021 could be better than the markets perspective. But today, it all depend on the outcome of the vaccination process.

Super clear. Thank you very much.

You're welcome.

The next question is from Tito Labarta with Goldman Sachs. Please go ahead.

Hi, good morning, Rodrigo and Pablo. Thanks for the call. My question is on efficiency. You mentioned you think you can eventually get, I think, around 42% efficiency, just, I guess how you would get there? And you mentioned your cost control, I think it's definitely an area of focus. I mean, you're seeing some pressure on margins, as you mentioned, and revenue growth in general. So to achieve that, 42% efficiency, what type of cost control does that imply? Expenses in line with inflation below that, what type of revenue growth do you think it would take to get there? And in terms of timing in a couple of years? Any color you can give on that would be helpful. Thank you. And also, just to add to that, just given the Cuenta FAN and digital initiatives, how much is all this digitalization trend benefiting the efficiency or potential improvements of efficiency? Thanks.

Thanks. Well, today how we measure our efficiency ratio, we have a 45.5% level. We think that we have room to continue improving that level to levels around 42%, and it's really focused, as we showed in the presentation in those three main areas. One is to control our costs better in order to use our resources better across all the bank, we implemented in 2020, an area that focuses on reviewing all the major purchases in Banco de Chile advisory services and is really focused on reducing our administration expenses. We also have been implementing for a while now more automation and the back office processes. And we're also improving our service model across the branches, as well as being very, very drift in terms of rehiring individuals who leave the bank on their own. So over the last five, 10 years, you can see how this evolved and their headcount has gradually reduced because of this strict rehiring process. Going forward, we've also implemented a new area that's looking at making the banks more productive and efficient, and there we'll be looking at many diverse areas that we can continue improving. This includes visualization of the bank. But there's no one key area that I can say that this is the key area that will mean 1% reduction in efficiency. It's the effort across all areas of the bank, a conscious effort to reduce expenses in each division by each manager. Also this year for 2021, I think it's important to mention that the costs going forward for 2021 in general, what we should expect is costs outside extraordinary events should be below efficiency inflation.

Okay, great. Thanks, Pablo. And is that a trend that can continue sort of keeping the cost growth below inflation? Is that part of what it will take to get there?

Yes, so if we look at some important facts to consider as well, I'm not sure how you have face the efficiency ratio, but our efficiency ratio, we don't include its operating income, excluding its not net operating other expenses. So if we look at the leader of the industry, the leader has 42.5%. So we have a gap there with 3%. And we should think that Banco de Chile still has a lot of room to continue improving our efficiency across administration expenses. You can see there is room as well to be more efficient as we grow. We can use digitalization the Banco de Chile more efficiently to grow in the future without having to rise our expenses.

All right. Thank you, Pablo.

The next question is from Neha Agarwala with HSBC. Please go ahead.

Hi, Pablo and Rodrigo. Thank you for the presentation. And thank you for taking my question. Could you give us some sort of guidance or indication on how the cost of risk could evolve for next year? And what kind of dividends can we expect for 2021? Thank you so much.

Cost of risk, we are still in a very uncertain time. So it's uncertain for the -- uncertain economically. We don't have a clear idea, understanding yet on the evolution of COVID. But we think that 2021 should be a better year economically than 2020, which that should mean that we should gradually like a transitional year gradually begin to return to more normal levels of cost of risk which is between 1.2% to 1.3%. Probably, because of all these measures that the government undertook and different benefits of the banking industry provided, we should probably see NPLs for the industry rise a little, because the level that we've seen in 2020 are probably artificially low. And then in the medium-term 2022 probably, around the cost of risk, which is more in line with our long-term level of 1.1% would be reasonable to expect.

Hi, Neha, this is Rodrigo Aravena. I'd like to add one AVSD [ph] here is that important to keep in mind that 2021, I mean this year will be a transitional year, and we will have a lot of uncertainty this year. So we don't know for example, what will be the long-term impacts of the pandemic in key factors, key drivers of our business. For example, the long-term impact on potential growth in terms of long-term interest rates. As I mentioned before, this year we will have a very important discussions for the future of the country, a lot of elections, et cetera. So that's why we tried to provide the most realistic guidance in terms of providing more basic fundamentals and mentioning that we have seen a lot of uncertainty, just to have any [Indiscernible], for example. Only in 2022, we will recover the GDP level that we have in 2020. The unemployment rate will likely remain around 10%, 10.5% during this year. So that's why, we are still caution for this year. We are now less than 2021 is at all the transitional year. And we will likely have more long-term figures only in 2022.

In terms of dividends, we recently announced that we proposed for the shareholder meeting payout of 50% of distributable net income, which is in line with what we had mentioned and released in material pack, and 2019 would be our level 60% of net income payout ratio. That's the level that we provision in our equity account.

That's with relation 2019 earnings, right?

In 2019, there's a material factor we mentioned that the level of provision, the level that we saved in terms of equity accounts will be -- the balance sheet will be 60% of distributable net income. So in the past two years, we had 70%, if I'm not mistaken and 60% for this year, based on distributable net income.

So based on 2020 distributable net income, would you be paying out 60% during this year?

60% of distributable net income, so distributable net income it's slightly below 50% of net income.

Okay, got it. Thank you so much.

Net income less the effect of inflation on -- you get to distributable net income and based on that figure 60%.

Okay, great. Thank you.

You are welcome.

The next question is from Pierre-Alexandre [ph] with Credit Core Capital. Please go ahead.

Hi, Pablo. Hi, everybody. I had two questions. First is [Indiscernible] regarding maybe [Indiscernible] you mentioned that as of December you had 460,000 of personal loans still in the program. You could give us the amount that is related to those 460,000. And the second one is regarding return on equity. Do you believe that returning to 50% ROE for 2021 as a challenge? Or it's something realistic for the bank given the current expectations?

In terms of the second question, ROE for us, we think that ROE it's still difficult based on the information that we had in our expectations and all the different variables that can occur compared to the year-end. But we're confident is that 2021 should be a better year than 2020, costs of risk should be lower. We're expecting more dynamic loan growth, which should be able to have at least a partial recovery of high margin products that we launched in 2020, consumer loans, for example. So it's a transitional year, which we think that after this while interest rates return more to normal levels, as GDP maintains to the levels that we've seen in the past, we can return to more similar levels of ROE that we had in the past. But for 2021, they still have many uncertainties, so it's difficult to give you a clear answer. But what we're certain of is that we should have the best profitability ratios in Chile amongst the banks.

And can you repeat the first question, please?

Okay, it's regarding [Indiscernible] I'm going to say here in which page, okay, it's in Page 14 of the presentation. You have, personal banking in the customer support front, 460,000 of personal loans rescheduled, that is as of December 2020. And if you could give us the amount to be at least 460,000 that's personal loans is scheduled to the value.

Okay. So the personal loan rescheduled we had in 2020 there is different plans that were implemented in Chile to help customers reschedule personal loans, which are related to consumer loans and mortgage loans. We also have customers in credit cards as well. So what we provided customers in the second quarter of last year and the third quarter, is to reschedule or defer consumer loans for three months. And in terms of mortgage loans, we offered them the possibility that we schedule those loans for up to six months. Today, the customer support plan for personal loans for consumer loans and mortgage loans has already come due, so these customers are already paying. In terms of SMEs there's about 40,000 customers that were benefited from the COVID-19 government guaranteed loans. And for these customers, it also included a deferral fund. So of the 40,000 customers, of the almost 40,000 customers, about one-third of those customers received or began paying their first installment in December, and these customers and also the other personal banking customers are all having very good payment behavior and have been doing exceptionally well, and you can see that in the numbers that we've posted in cost of risk. Our models are sensitive to early deterioration, early delinquency. So if they don't pay within the first month, generally you can see those impacts. And what we've seen and what you can see otherwise is that the payment behavior of the personal banking customers and SMEs has been very positive.

So that 460,000, what is the number of the loans rescheduled throughout 2020, not necessarily the ones that are pending or still have a rescheduled, value?

So, what was rescheduled at one point in time, not what’s pending.

Okay.

Perhaps it's important to mention that in the annual report of the bank of 2020, which will be released by early March, there will be much more information breakdown and details about all the program what were scheduled for loans and other similar things.

That's all in the financial statements, you can see in the financial statement, there is a note regarding that with the breakdown.

Thank you. Thank you very much.

You're welcome.

The next question is from Ernesto Gabilondo with Bank of America. Please go ahead.

Hi, good morning. Rodrigo and Pablo, thanks for the presentation and for the opportunity to ask questions. My first question is a follow up with program portfolio. I know that you will provide further details, but can you share with us what is the percentage of delay that you have seen so far? And for my second question, can you provide your expectations for fee income? Should we expect they growing above or in line loan growth? I don't know, this could be supported by a recovery in insurance and your alliance with Chubb. And how should we think about your effective tax rate? Then finally, when incorporating your guidance, would it be reasonable to expect a net income of around CLP600 million? Thank you.

One second, please. Okay. So in terms of your -- as I mentioned, in terms of your first question of the payment behavior of customers in all the segments has been evolving very positively. So we've had a good level of payment behavior in SMEs and consumers and mortgage loans. And we're posting, as you can see throughout the first quarter, sorry fourth quarter, very low cost of risk, which most of the cost of risk that we had was we had a level of around 85 billion and 80 billion was additional provisions. So you can confirm that the payment behavior has been exceptionally well at Banco de Chile. So we have around and there's different ways to look at this. So I could tell you in 30 days, 60 days, 90 days overdue, in 30 days overdue, we have a level close to 2% of loans that are overdue from customers who have had some sort of payment holiday. And the second question for fees, what we've seen in fees is more transactionality and good performance in the last months, returning to more normal levels. It's like a V shape. So what we've been seeing is customers as the economy continues to open transact more. And this has been helping our fee based business. Obviously, we're still not at the levels that we've had prior to the crisis, but we think as the economy continues to evolve, the vaccine to continue the rollout and normalization begins, we can return to those levels. So in terms of fee growth, we think that the core fee growth is around 8% for us. And that would be excluding all of the Chubb fees that we had. In terms of expectations, obviously, those could be better if the economy improves faster than we expect and the market expects.

And also important to consider the role of inflation in the future. So as Pablo mentioned, we will likely have a V shaped recovery during the year. In the margin, we're expecting more than any economy in the second half of the year. So that's why there is a possibility to have greater economic growth, high inflation, probably potential recovery interest rates back. Given the uncertainty, we are not providing a more specific guidance in terms of numbers for the year, especially in terms of ROE, et cetera. That's why we would like to reinforce the idea that it will be an efficient year and on average perhaps in some measures, on average 2021 will be similar to 2020, but we're expecting a better performance in the future, especially in the next year.

Perfect. Thank you, Rodrigo and Pablo. And just for my question on your expectations for the three consecutive tax rate?

Expectations of a tax rate was a 3% level of cost of inflation. Generally, the banking industry should be around 23% more or less. So in general, that should be the level. There's extraordinary items in there. For others, I'm not sure, but for us, 23% with 3% inflation.

Perfect. Thank you so much.

You're welcome.

The next question is from Claudia Benavente with Santander. Please go ahead.

Hi, thank you. So basically, I'd like to know a little bit more in additional provisions. Let's suppose that we see an economic recovery, how should we see the amount of additional provisions created in 2020? Not the buffer that you already have created since years ago. So basically, I would like to know if there is a likelihood that we see this amount of provisions being released? Or should we see as an additional security buffer? Thank you.

In terms of additional provisions, these provisions were made throughout a large amounts of these provisions were made in 2020, because of all the uncertainties that exists in the economy, with regards to the pandemic, and how this is evolving. I think today, it's very early to tell how the economy will evolve, the expectations is that it should be better, but we can't rollout. We can't rollout anything at this moment in time. So it's still a moment of uncertainty and it's difficult to say, the evolution of those additional provisions in the future.

So we are waiting for more information in terms of the impact of the pandemic in the economy with now what will be the legacy of this crisis in the economy. So that's why today we can rule out similar actions that perhaps what is more important is to keep in mind, the total stock of provisions that the bank has today, especially when we compare with other banks in Chile. So I will quote operationally it's much better than our main competitors.

No. I know -- what I was asking is supposing that we see an economic recovery, should we see this created additional provisions in 2020, something that could be released? Or you believe that having a 3.5 times coverage ratio, is better like an economic recovery?

Sorry. In that case, Claudia, what we would need is a more sustainable recovery. It's almost impossible to have this year in Chile, a nearly zero output gap, the unemployment rate. Despite the recovery, we can discuss, for example, if the economy will grow this year 5% or 6% that in any case, the unemployment rate will likely remain above the levels that we saw in the past. So that's why today it's very difficult to answer this question, because despite the potential recovery, we need that this recovery will be sustainable in the time, without having that type of policies from the government. So I would say now that we would need more information and more signs of recovery to sustain the direction of provisions. So that's why today, we remain very bullish]. We would like to see the quality of recovery in the beginning of the year. Perhaps in the next quarter, our vision will be different I don't know, but according to the information that we have so far, we will remain very cantilevered. And we prefer to say that we can rule out similar decisions today. Let's see what happens over the next few months.

Okay. Thank you.

This concludes the question-and-answer session. At this time, I would like to turn the floor back to Banco de Chile for any closing remarks.

Okay. Thank you for participating and we look forward to speaking with you in the next quarter earnings.

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