Good afternoon, everyone, and welcome to Banco de Chile's Third Quarter 2022 Results Conference Call. If you need a copy of the Management Financial Review, it is available on the company's website. With us today, we have Mr. Rodrigo Aravena, Chief Economist and Institutional Relations Officer; Mr. Pablo Mejia, the Head of Investor Relations; Mr. Daniel Galarce, Head of Financial Control and Capital; and Ms. Natalia Villela, Investor Relations Specialist. 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 the forward-looking statements. I would now turn the call over to Mr. Rodrigo Aravena. Please go ahead, sir.

Good afternoon, everyone. Thanks for joining this conference call today, where we will present and analyze the results and accomplishments posted by Banco de Chile during the third quarter of this year. Before beginning this presentation, I'd like to say we are pleased with the several achievements of our bank during the quarter, demonstrating its unquestionable leadership in the Chilean financial industry. Some of them include the following: We posted the highest level of net income and profitability in the local industry. We remain the best capitalized bank in the country, confirming our superior position to face business challenges and Basel III phase-in transition in the future. Despite the market slowdown, the quality of our portfolio remains strong, also attributable to our sound and prudent risk management. Additionally, we continued posting significant advances in key strategic areas for the long-term sustainability of our bank, such as digital transformation, focus on improving productivity and ESG, among others. We will go into further detail about this and other aspects in the rest of this call. As usual, we have divided this presentation into 3 main sections. First, an overview of the macro environment that we face, including our forecast for the next year; second, a review of the main advances in strategic projects; and finally, a deep analysis of our financial results. Let me start with the macro section. Please go to Slide #3. The Chilean economy is slowing down. After expanding by 11.7% in 2021, the GDP went up by 7.4% and 5.4% year-on-year in the first and second quarter of 2022. A valuable information for the third quarter shows a further decline as the monthly GDP decreased by 0.4% year-on-year in September, becoming the first negative figure since mid-2020 when the economy was highly affected by social restrictions implemented during…

Thanks, Rodrigo. Please go to Slide #8. The basis of our stronger and more sustainable bank has been achieved through our sound strategic pillars based on customer centricity, productivity and sustainability. To reach our midterm goals, we have established 6 strategic focus areas. In the next slide, we'll go over some of these advances that we have made in digitalization, productivity and sustainability. Please move to Slide #9, where we will highlight some of our initiatives in digital banking. Our main digital debit account continues attracting new customers to the bank. As you can see on the upper side of the slide, we have a stock of over 974,000 FAN accounts, adding approximately 79,000 new accounts during the third quarter of 2022 and over 385,000 during the last 12 months. Even though this account is doubling our core customer base composed of debtors and/or current account holders, it's important to highlight that we did this without compromising our service, as you can see in our total Net Promoter Score that continues in the levels of 75%. In fact, Cuenta FAN, which is a 100% digital account, has a higher level of customer satisfaction registering as Net Promoter Score of over 80%, which means that we are offering a great digital experience. In line with our strategy, during this year, we launched diversity functionalities, digital products and services to complement and improve our ecosystem as listed on the bottom left. Additionally, we have launched new functionalities to our app, Mi Pago, to make this app more comprehensive and useful for our customers. Some of the new features are the possibility to withdraw funds from ATMs without a card, to pay thousands of online and physical stores using QR codes and make and receive transfers between select banks through the Paga2 functionality.…

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. [Operator Instructions] Our first question comes from Mr. Alonso Garcia from Crédit Suisse.

My first question is on your cost of risk for next year. First, if you could comment on any kind of guidance that you have for 2023. I know that additional provisions are a decision of the Board. But I don't know if this guidance that you are seeing for next year could include either any creation of more additional reserves or maybe considering the challenging environment, a release of such additional reserves? Also in terms of the cost of risk, I don't know if you are -- if you have estimated the potential impact on your level of reserves from the regulatory change regarding methodology to provision the consumer portfolio. So that's question number one in terms of cost of risk. My second question is on your outlook for NIM. This year, you are guiding it for 5.3% NIM. But next year, you have a combination of lower interest rates, but also lower inflation. So I don't know if you could provide some color on where the NIM could go up to this 5.3% this year?

So in terms of what our expectations are for risk this year and the next year, what we're seeing is we're still in a transitional year with the low levels of cost of risk, I would say, through models and in the long term. You have to take into consideration that there's an important part that's composed of additional provisions, which today, as long as we start to see more certainty in the future, we can expect probably more normalization in terms of the cost of risk figure that should be more composed of provisions for models going forward. So what our expectations are for this year and the next is levels of around what we're seeing today at 1.2%, 1.1%, 1.2% for next year. And it's important to mention what you spoke about in your question is that there's a new model for the consumer loan book, a new provisioning model. Basically, where that new provisioning model is being discussed today for a standard consumer loan model. And there is a consultation period that's taking place today. It should end near the end of the year, and probably this will be implemented sometime next year. So what's important to mention is that we've been very prudent in terms of our risk policies and how we manage our risk at Banco de Chile, and we've implemented more strict procedures and then policies in the consumer loan book. So more likelier than that is that the level of cost of risk from this new model should be substantially less than our market share in consumer loans and much less than that would represent of approximately USD 1 billion, that's the regulation -- that the regulators mentioned. That would be the cost of this new model. So I think more importantly even is that for 2023, what I mentioned, the 1.1%, 1.2% of cost of risk, which is in line with the long term for 2023, is also including what we expect as long as our baseline scenario comes true to include the new provisioning model. So around the 1.2% of cost of risk, including the expected cost of this new model based on the information that we have today. But it's important to mention that this is still being discussed, so we don't have a final draft.

Sorry, just a follow-up there, the 1.2% -- I mean when you say it includes this new methodology, do you mean that you are considering this 1.2%, the increase in your stock of provisions? Or only the new, let's say, run rate for the consumer portfolio as part of this 1.2% cost of risk?

It's -- the cost of risk that we should have, including the implementation of this new model.

Okay, but also...

Actually, you cut out.

I mean also the onetime impact for...

Yes, yes, yes. The onetime impact and the ongoing, all of it. So in a baseline scenario should be around those levels. We don't expect a strong deterioration in Chile. We're entering a short temporary period of a recession between now and mid-next year [ without ] relatively stable, slightly higher unemployment levels, but we don't expect a strong deterioration. So in this baseline scenario, we don't expect a relevant change. If we look at the portfolio and the NPLs per product, everything is below the levels that we've had prior to the pandemic. We have a very solid portfolio in all the segments that we operate in. There's a few segments that have had some issues, but we have a very strong risk management team. The issue is in the industry, not for us, which manages very well, and we haven't seen a relevant impact at all for us. So we're very, very comfortable with the level of coverage that we have today, especially that we have the highest level of coverage ratio in Chile and that's something that has to be reviewed in the medium term, obviously, as long as how the economy continues to evolve and what will happen with those additional provisions in the future, which is a Board level discussion. So we can't roll out a reversal of additional provisions in the future, but it really depends on the Board level and the evolution of the economy as a whole. In terms of NIM, so if you look at NIM, today, we have NIMs that are in the level of 5.6% year-to-date. Last year, it was around 3.4%. What drove this high level of NIM is our prudent risk management practices, not only in credit risk but also in market risk, which allowed us to take the full gain of higher inflation and interest rate in this figure. So we had a very strong increase, which we can see in our bottom line in net interest margin and net...

Please stand by, ladies and gentlemen, I think we have dropped the host. Banco de Chile will be reconnecting shortly. Please stand by. [Operator Instructions] Please go ahead, Ricci. I [ know ] you are back, right?

Okay. I don't know where I was left off. But in terms of -- where I was cut off. But in terms of NIM, we had NIM around 5.6% year-to-date for 2022, around 3.4% in 2021, and this was driven by the prudent management of the bank and how we manage our total business market risk. And we took full advantage of the rise of inflation that went from around 3.5% year-to-date in 2021 to the 10.5% in -- that we've seen year-to-date, the variation of the UF for 2022 and the full year advantage of the rise in interest rates. So for next year, we foresee a decrease in inflation, which is going from the 10.5% half what we've seen today in year-end closer to 12%, 13%, somewhere around there. But for 2023, the full year inflation should be something similar to 4.5%, 5% and overnight rate of around the 6%. So under this scenario, we expect our net interest margins to be around 4.3%, 4.5%, somewhere around that range, which is in line with the longer-term levels of net interest margins considering a long-term overnight rate of around 4.5%, 5%, and inflation around 3%, 3.5% in the long term.

Hi, Alonso, this is Rodrigo Aravena. Let me highlight 2 important things to consider for the next year. One of them is that within those declines in the inflation posted at the year-end for this in the next year, as Pablo said, it's very important to keep in mind that there will be only a gradual decline in inflation in terms of the average inflation between these and the next year. Since for this year, we're expecting an average inflation rate of around 11.5%, while for the next year, we're expecting an average inflation rate, not year-end, an average inflation rate of around 18% for the next year. The same for the interest rate, we're expecting only a decline, only a gradual decline in the interest rate from 11.25% to 6% next year that the Central Bank would likely start the easing process by the second quarter of the next year. Also very important to analyze [ some factor of ] [indiscernible] for the next year, especially some reforms that probably will be discussed and implemented next year, for example, the tax reform, the pension reform. The government yesterday announced a proposal. So it's very important to analyze how these reforms will be discussed, will be implemented next year because these are one of the important ways to monitor for the next year.

Our next question comes from Mr. Jason Mollin from Scotiabank.

Congratulations on the very strong profitability and results in general in this quarter and the past quarters in absolute terms and versus your peers as well. I thought maybe top down, Rodrigo, you mentioned pension fund reform and tax reform. If you could talk a little bit about how that could impact the economy, the banking sector and Banco de Chile? And then maybe on a specific level, just to talk a little bit the ROE outlook in a normalized basis looks great. But just wanted to get a sense of the growth in fees, in particular, relative to the growth in expenses. So we saw total noninterest expenses were faster than fees. And you showed the breakdown on some of that is bonuses and such, which seemed very narrative in this current context. But if you can give us some color there, that would be helpful.

Jason, this is Rodrigo Aravena. So in terms of the long-term ROE for the bank and for the system as well, I think that before providing a specific number, it's very important to analyze which are the expansions that we are considering for that estimate. First of all, we are expecting an economic growth for the long term of around 2.5%, 2.3%, which is a bit lower than demand that we used to have in the past. So there are several reasons behind this lower expectation for the long term in terms of economic growth, including, for example, the lower economic growth for the world, that some long-term impact from the pandemic, we have to remember that there was a deterioration in terms of savings as a consequence of the sovereign pension fund [ growth ]. So that's why additionally, we're expecting higher long-term interest rate in the future. Chile used to be a country with a new [ price ] interest rate of around 3% in terms of the monetary policy rate. Today, we have a different country, so they would have a different level of internal savings. So there are reasons that to be consistent with a higher level of interest rate of equilibrium in Chile. A similar analysis we've had in terms of inflation. We can rule out that the inflation for the next couple of years, I believe, will be a bit higher than the Central Bank target, which is 3%. So that's why we're expecting a year-end inflation at 4.5% for the next year. And we can rule out that in 2024, the inflation rate will remain above the Central Bank target, which is 3%. So what you can see here, we have some different trends, mix trends, I would say. On one hand, we have a negative impact from the lower economic growth. But on the other hand, the acknowledge, the impact for having a higher level of interest rate, high inflation in the future, we'll have the opposite impact in terms of our profitability. In terms of reform, the final impact on the economy in the long term coming from the reform, we'll have to analyze finally, how will be the discussion, the final contents to be included in the reform. We'll have to consider as well the impact, the phase of the absence of majority for any coalition in the congress, which can create a different result from this reform. So, so far, the analysis that we'll have for the long term, I would say, is a lower growth in terms of potential rate, but high inflation and interest rate at least for the next couple of years. So how this will impact in terms of our ROE for the long term and [ deposition ].

Okay. So well, in terms of ROE for this year and the next year, we have -- we're having very good figures. So from year-to-date, we have over 30% ROE. We have -- for the end of the year, will be one very strong as well, as you know. And for 2023, it's still a transitional year where we still have high inflation, high levels of the average inflation, high levels of average overnight rate, which the averages is very important in terms of the average inflation for fees and expense growth. So if we look at for next year, we should think that the bank will continue growing. Generally, we grow around 7%, 8% in number of customers. That's one of the main drivers for the growth, cross-selling those customers and also the inflation impact on the fares that we charge. So we should have low double-digit fee growth for next year. For expense growth, it also should be slightly higher than the inflation that we're expecting because of the averages. So we have a high level of inflation in 2021, which affects inflation for -- which affects our cost for 2023. I think I had mentioned [indiscernible] we had high inflation for 2022, which is affecting the cost for 2023. On top of that, we have inflation in 2023. So the most likely scenario is that cost for 2023 should be slightly in line or slightly above inflation. So for 2023, we have to think something above 20% ROE. And in the long term, ROEs should be in line with a long-term level of 18%, which takes into consideration what Rodrigo mentioned, higher overnight rates on average inflation in line with the Central Bank target range of 3% or maybe slightly above that. That's important to mention. And also our expectations and our focus is to be the most profitable bank in Chile with the highest level of ROE.

I guess we just -- we'll need to wait in the -- to see how these reforms evolve or what the final versions are. Any comments on that process or when we could see that?

So it's important to keep in mind that there will be several discussions in Chile, especially over the next 6 months, I would say. Today, the congress is discussing the mechanism for the new constitutional process. You have to remember that there was a next referendum with mandatory [ both the ] -- more than 50% people rejected the proposal for new constitution. So the question is, okay, okay, what will be the next step in that process? There will be not a new referendum. It has to be decided very soon. The same for the tax reform. Today, there is a discussion in terms of mining taxes, personal and wealth taxes, et cetera, things for the pension reform. So I would say that the next 6 months probably will be critical in terms of the evolution of economy and the economic cycle for the next couple of years at least. So that's why we think that one of the few ways to monitor in Chile for the future is related with the economic discussion in Chile in both -- in terms of the new constitution as well as reforms.

Our next question comes from Mr. Andres Soto from Santander.

I have 2 questions. The first one is related to expenses. You mentioned this target for efficiency ratio to be at below 45%. When I look at your numbers and the cycle evolution, and I look at them from a cost-to-asset perspective, I see that an impressive improvement that you delivered in 2021. You guys mentioned you got 30% of your branches. And you reached a long-time low of 1.8% cost-to-assets. Looking ahead, obviously, there is inflation, but if I take the 45% number that you just provided us along the guidance, that implies a cost-to-asset of 2.1%, which doesn't look too much -- too ambitious. So I would like to understand to what extent there is potential for this efficiency ratio to be below the level that you are currently projecting?

The 45% is -- the target is to be below the 45%. So before the pandemic, we had a level of around 45%, consistently around that level 44%, 47%, around that level. But -- and the target is to continue to be more efficient and especially through the use of digitalization, more technology, less branches. We can do more without the need of hiring more people. That makes it possible to become much more productive and efficient. So the 45% is what we have, and the target is to continue to be embedded. For example, for next year, we expect a level of efficiency, which will still probably below the 40% despite the drop in inflation. So it's -- to look at -- to use efficiency in Chile is difficult because efficiency is affected so much by inflation on the top line. So to use the over assets is a good way to measure the long-term productivity of the bank. And we should continue to be very efficient in the medium term in terms of cost to other indicators other than operating income.

And looking more to the short term. When we look at the results in the third quarter, there was a significant increase in expenses. What part of that increase is structural? And what part is temporarily due to bonus payments or any other factors that could be not -- over the next few quarters?

It's not structural. It's mainly due to the large bonus that we gave employees for their merit for doing a very good job during these last few years. It's mainly related to bonuses.

Got it. And then my final question is more related to dividends. When you described -- you guys described the outlook for Banco de Chile, you are thinking about lower growth of the medium term, higher rates, higher inflation, higher profitability. What are the levels of capital ratio that you guys feel appropriate for that situation? And how do you believe investors should think about Banco de Chile, should be more of a dividend payer looking ahead instead of a growth story? Or what are your thoughts around your capital levels and the potential for increased dividend distributions?

I think it's a combination of what's happening in Chile and the evolution of the economy and how strong all companies in Chile can continue growing. In terms of how we generate a consistent and long-term attractive dividend for our shareholders, we've been doing that very well in this scenario. We've had a very attractive dividend in the last years. We have a very -- we have the highest profitability in terms of ROE. We have the highest coverage ratios. And we have the highest CET1 ratio. So we also have to be very careful in managing our capital efficiently. And we think that we have a strong position that we can continue providing a strong and attractive payout to our shareholders. So when we look at our dividend payout ratios, we have the dividend policy, which we recorded provision for minimum dividends and equity accounts of 60% of distributable net income, which is net income less effective inflation. On equity, you get to distributable that -- but we also have to take into consideration the future periods and what the economy and expectations of growth that we can have to have a good level of risk return and a good level of CET1, et cetera. We can't have CET1 and baseload ratios growing infinitely [indiscernible] to what we've seen in the past. We have rolled out that we have a higher payout ratios in the following years, as we have had in March of this year and in prior periods when we've paid out more than the minimum annual dividend and the policy that we record for our equity accounts.

And what will be the level of CET1 that will make you feel comfortable?

I'll pass this to Daniel Galarce.

This is Daniel Galarce. Yes, with the current levels of CET1, we are quite comfortable. Of course, we know that the CET1 has been reinforced by the excellent results we have recorded so far. But with the levels we are presenting today, we feel comfortable going ahead.

Our next question comes from Mr. Yuri Fernandes from JPMorgan.

I have a question regarding like funding like deposits growth and all that. We saw CMS without a new public hearing for new liquidity requirements for the Chilean bank. So my question is, how do you see that regulation where you will be demanded to drive more funding? This can drive more competition for deposits and higher funding costs. Like is this something that could happen in the system? So that's kind of the first question in this regard. And the second one is just how you feel about funding, right, because you have a very good funding, best-in-class. So how can this become even a more competitive advantage for you, if that's the case?

Regarding liquidity, we have a solid position in terms of liquidity. Of course, one of our main patent setters is the deposit base that we have, not only in terms of demand deposit, but also time deposits. We're not really concerned about this going forward. But of course, we are also analyzing the new rules for -- in terms of liquidity for the whole system. But we consider that we are in a good position in order to address these requirements. And the second question was?

No, no. How comfortable you feel about funding, but I guess you already replied.

We normally set our funding needs, depending on the growth we are predicting for the whole balance sheet. And accordingly, we have room to grow in different sources of funding, like long-term bonds, depending on how the balance sheet is going to grow over the future. So today, it's not unserved for us.

And regarding the demand deposits and time deposits, is the worst behind? Or should we continue to see demand deposits shrinking given the cost of opportunity of higher rates while time deposits [ mature ]?

We should continue to see a normalization in terms of demand deposits. And of course, this is going to be replaced with time deposits mainly and particularly for individuals, for instance. But in the rest of the cases, probably we will have a mix between time deposits and long-term debt, depending on the growth of our balance sheet. In addition, it's important to mention that in the case of the recent liquidity changes, as you could see in our last report. Basically, the impact that we have in terms of the LCR ratio was not very significant because basically, we have a good grade buffer in terms of high liquidity -- high-quality liquid assets. And accordingly, the LCR is well above the regulatory [ events ]. Also -- and even the [indiscernible] could end in the future, our liquation so continue to be very comfortable for us.

I think one thing -- It's Pablo Mejia. So one thing I'd add also is that you have to take into consideration that we have the best quality of customers that we consider, at least. So we have a very high level of market share in upper income, retail segment and very top-tier companies. So this mix should continue to allow us to have a leading position in terms of demand deposit funding, especially in this time, the liquidity returned to more normal levels in the medium term when all these funds and current accounts from all these government and different regulations or changes during the last few years, this liquidity dissipates.

We see no further questions at this point. I'll pass the line back to the management team for the concluding remarks.

Well, thank you for everyone for joining our call, and we look forward to speaking with you for a full year 2022 results.

Thank you very much. This concludes today's call. We'll now be closing all the lines. Thank you. Goodbye.