Good afternoon, everyone, and welcome to Banco de Chile's Third Quarter 2023 Results Conference Call. If you need a copy of the management's 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, Head of Investor Relations; and Daniel Galarce, Head of Financial Control and Capital. Before we begin, I would like to remind you that this call is being recorded and that 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, sir.

Good afternoon, everyone. Thank you very much for joining this conference call. We are pleased to present the performance of our bank during the third quarter. A Bidder, once again, Banco de Chile demonstrated its unquestionable leadership. Some achievements include a solid net income of CLP 260 billion in the quarter, equivalent to an ROE of 21%, remaining the most profitable bank among peers. We also led the industry regarding capital, asset quality and margins. And achieved significant accomplishments in other nonfinancial areas. . I want to remind you that further details are shown in the management discussion report released this week and available on the banks were paid. Before moving to our presentation, we are very proud to mention that recently, Banco de Chile completed 130 years of history offering comprehensive solutions for our customers and promoting the development of the country and the people. I'd like to begin with an overview of the competitive environment and our forecast for this in the following year. Please go to Slide #3. Chile is a small and open economy highly integrated into the rest of the world, which is why it's critical to monitor the evolution of global drivers that could potentially affect our economy. As the upper left chart shows, we've seen lower dynamism in the global economy, which has been reflected in the downward adjustment in global TV forecast. As the IMF mentioned it is we report, this negative trend is attributable to the weaker-than-expected growth in China which represents nearly 40% of Chilean export. In addition to this, the chart on the upper right display, there's been further slowdown in most countries during this year. These trends have affected Teletón economic activity, which has declined annually since the second half of the last year, as seen in the…

Thank you, Rodrigo. I would like to begin with advances in our main strategic focus. Please go to Slide #8. Our impressive track record is the result of our consistent long-term strategy that places customers, efficiency and sustainability at the center of everything we do. We've put these pillars into action through 6 key goals, and we've surpassed all of our midterm targets, as you can see on the right of this slide. In the upcoming sections, we'll take a closer look at how we've been thriving in digital transformation, productivity and sustainability and how this has translated into posting remarkable financial results. Let me start with digital banking. Please move to Slide #9. In terms of digital banking, our initiatives are focused on offering customers an innovative value proposition simple and tailored to their needs and provide the best experience. To achieve this, we have developed a comprehensive digital ecosystem that includes virtual accounts for diverse segments such as individuals over 18 years old, SMEs and teenagers. This initiative has resulted in over 1.3 million digital accounts and registers solid growth quarter-on-quarter as detailed in this slide. One noteworthy advance we have recently undertaken its integration of contactless mobile payment functionality through Apple Pay wallet. On the productivity and efficiency front, our efforts are centered on building an agile and modern bank through innovative, effective, automated and secure digital front-to-back processes. This quarter, we have made significant progress in this area, including the enhancement of CapEx budgeting planning process to ensure a precise alignment of organizational resources with the strategic objectives while optimizing the returns from all our investment projects. Concurrently, we also implemented new tools to reduce customer service delivery times. And to further maximize returns, we implemented a new deposit pricing strategy that resulted in improved margins.…

[Operator Instructions]. Our first question comes from Mr. Tito Labarta from Goldman Sachs.

I guess my question is on sort of the evolution of ROE. I know you said 23% for this year and sustained 18%. But just sort of over the next year or so, you have excess capital, you mentioned you have excess provisions and with more normalized levels of inflation rates coming down, how do you think that ROE sort of evolves from the 23% to 18% over the next year or 2? And kind of related that with that core Tier 1 at 13.5%, you mentioned you're well above peers, well above requirements. Is there room to return capital there? And what is the normalized sort of core Tier 1 that you should operate with?

[Operator Instructions].

Sorry. So as I was mentioning -- or I was trying to mention. So there's a lot of factors that work for and against revenues in this moment. Due to the pandemic and situations. We have a loan book, which I mentioned is more focused on lower income -- lower margin products. Lower risk, but we should start to see a normalization plus we have other things unwinding in both in the assets and the liability side. So what we think for the next year and the following years, that these areas. These factors should continue unwinding and we should begin to move gradually to a level closer of 18% of ROE. We think that 18% is our long-term level of ROE. And with a normalization and key economic figures, we think that this is very doable in the next couple of years. So it will be a gradual return to that level.

Tito, this is Rodrigo Aravena. I'd like to add some -- just a couple of additional ideas. We're expecting a different contribution from the main macro drivers towards the future. Because on the one hand, we are aware of the lower potential capacity growth of Chile so probably, we are going to see next year, an economic growth of around 1.5%, 1.7% something like that. And from on that, probably, the economic growth will be around 2% something like that. We are aware that this number is lower than the number of around 3% to 5% as we used to see in the past. But on the other hand, probably, we're going to have higher levels, structural higher level of interest rate in Chile. We think that the neutral level of interest rate in Chile is higher than before in our baseline scenario in the long term, the interest rate in Chile will be around which is higher than the level of 3% that we used to see just a couple of years ago. So that's why we are trying to say that we are going to have opposite forces between the real activity compared to the positive contribution from high inflation and higher level of interest rates. So that's why we have maintained our long-term guidance of ROE at 18%.

Okay. Just following up on the question on core Tier 1 and what the right level should be?

So in terms of core Tier 1, there's a lot of factors as well that we have to take into consideration. So we have a prudent, consistent strategy in the long term. Our decisions are always based on having a good return risk and return level and preserving the economic value of Banco de Chile. So that's why we've placed in prior to the pandemic, a dividend policy that's closer. That's around 60% of distributable net income. And in the last 2 years because of different factors in the evolution of the economy, we pay the 100% of distributable net income, but the proposal of the dividend is reviewed and defined each year by these factors, economic factors, the capital needs to sustain growth in the environment. So in 2022, we saw an economy of political uncertainty and which reduced the expectations of growth for the following years or the following year. So we had a higher dividend policy than our higher dividend payout than our policy. So we take into consideration all of this, it's important to mention that there's still a lot of factors that we have to see being implemented. For example, Basel III requirements, including Pillar 2. So for today, the policy of our dividend payout is 60%. In the moment that the annual dividend is decided it in January of every year and proposed by the Board of Directors. So in this environment of low growth, we have rolled out that future dividends would be different from the historical distributions. And that we have to use our capital efficiency efficiently for risk and return, but the proposal, as I mentioned, is in January.

Okay. I guess -- does that mean for now that we should expect the core Tier 1 to remain around that I'm not clear if there is some target or it depends on several different factors, I guess, as you mentioned.

It should be around those levels.

Our next question comes from Mr. Daniel Mora Ardia from Credicorp Capital.

I have a couple of questions. The first one is a follow-up on ROE. I would like to understand if 2024 should be considered a transition year for Banco de Chile, considering that we continue to observe profitability figures above 20%, but the long-term target is around . so do you still believe that ROE could be between 18%, 20% in the next year? Or should we see already normal figures close to the 18% for 2024. That will be my first question. And the second question is regarding margins. Considering the new guidance of inflation, interest rates and the fact that Banco de Chile is rebuilding the loan mix similar to the one that you have before the pandemic. What will be the path or the performance of margins from this quarter going forward in 2024. Thank you so much.

Yes. So in terms of ROE, we should see a normalization. So today, we have -- and today and last year, we had very strong ROE figures of well above our long-term historical levels. Last year, over 30% this year, we're over -- well over 20%. And we should expect for the year-end, in line with the guidance, as you can see in our press release, is we're expecting around 23% per ROE. For next year, we see a year with lower overnight rate changes in the assets and liability structures, which some are in favor and some are against have an impact in terms of margins. And this should have a reduction in terms of operating income, which is normal because what we're seeing today is unsustainably high levels of revenue generation of they are generating this level of 20% -- above 20% ROE. So it's reasonable to expect that next year we should be closer already to the 18% level, which is our long-term level. In terms of margins. We have -- what we're expecting is a normalization of the economic figures, which assist in these levels of margins. So this should -- this is a factor that will push down net interest margin, but at the same time, we're continuing to see growth in the originations that we're having today are offsetting the originations are offsetting the amortizations and different family of products. And what we're seeing is an improvement in spreads. So we have back to -- again, it's in favor and against. So today, what we're expecting for 2023 is a net interest margin close to point 4.4% for this year, for the end of the year, we're estimating with the baseline scenarios you can see in the presentation. And for next year, it's reasonable to expect a slight decrease in those figures, but taking into consideration that there are factors again, they're unwinding. So we have to take into consideration all of these factors that are in favor, higher spreads of different products, normalizations of overnight rates, et cetera, et cetera. And that will allow us to have a net interest margins maybe 20 basis points lower than what we're expecting this year. So it's a normalization. In the long term, we expect their net interest margins obviously take into consideration competition, et cetera, the long-term overnight rate expectations, something similar to what we had prior to the pandemic.

Next question comes from Yuri Fernandes from JPMorgan.

I have a first question for Rodrigo. Just his view on the constitution process if this can be a catalyst or not, if this is not approved, if we will keep discussing a new constitution in Chile for or if the story will be over. So just as stake on this new constitution process 2.0? And I have a question for Pablo, I guess, on loan growth. What is the outlook. The industry is growing very little, Banco de Chile also around the industry, 2% year-over-year. But in the past years, you lost some market share, right? Like Banco de Chile used to have 19% to 20% share 10 years ago. And now the bank is running at 16%, 17% share. So my question is, why not accelerate more the growth for 2024, regain some market share or know the scenario is to certain because you have more capital than peers, you have more covers then peers. So why not getting a little bit more aggressive on here? Thank you.

This is Rodrigo Aravena. Thank you very much for your question. So we have to consider several things. We are aware about the existence of different source of uncertainty on the political side in Chile, one of them is related with the constitution, as you mentioned before, it's too early to anticipate one specific impact from the constitutional process. According to different surveys of the different options for or again the [indiscernible] are narrowing, but still you know that -- there are some differences, but we have to see how it will evolve in the in the future. But despite that, that situation, we have to put also a special attention to the evolution of some reforms in Chile. One of them, for example, is related with taxes. This year, and there was a proposal from the government, which was rejected in the early stages in the Congress. Probably, we are going to have some discussion on taxes next year. Also, Chile is discussing some changes in the pension system. Today, what is on the table today is increase on the mandatory saving rate by 6 additional [indiscernible] point, but note, how will be the distribution from that saving oriented to the personnel savings against a more solidary dealer in also we have to identify different discussions related to the political seat in the constitution, et cetera. But when we consider all these aspects, we are aware that the political, some sources of political uncertainty are reducing our expectations for investment for the next year. So that's why we're expecting 1.7% of economic growth for the next year with a negative contribution for investment. On the other hand, we are more possibly for consumption. But all in all, the political uncertainty is one of the reasons that's why we are still expecting a below-trend economic growth for for the next year. But it's too early to anticipate any more accurate impact from the constitutional process, even though this is 1 of the 2 or 3 more relevant factors for the related with our expectation for the next year.

And in terms of loan growth, so today, we've been growing quite well in terms of the areas where we're focused on growing, but always taking inconsiderations a good relationship between risk and return. So we want to grow responsibly, so not only in market share. So where we have grown, which is where we are interested in is in retail loans. And in retail loans, you can see that we've been actually growing market share picking up market share this year in consumer loans, for example, we have close to 60 basis points higher market share, and this is an area that we're very interested in growing. So if we look at -- our key focus areas is the retail segment, which includes SMEs and consumer loans are the most profitable and the areas that we want to continue growing. In terms of areas that we've had lower dynamism in the past has been corporate loans. It's an area that -- we would like to continue being there. That's an area that will continue growing. The demand today isn't there. So what we've seen is a much lower demand in this area, but we think that we can return to growing in in this product. If we think of next year expectations of loan growth for the industry and us, the industry, we're expecting somewhere around the 6%, 7% nominal. And our intention is to grow above that in terms of market share. responsibly. And we should continue growing in this key area that we're focused on, which is the retail segment, especially in consumer and SME loans.

Pablo, anything special you're doing in retail, like we see some peers with partnerships with retailers like we have retail banks in Chile also growing in certain areas of retail, right, on credit cards. Are you doing something in particular, I don't know, like on SME, do you have any special approach. What are you doing to grow on the retail side of things?

We're implementing different commercial strategies in order to improve the relationships with customers and offer different products and services through the channels that the customers are demanding and having the appropriate appropriate marketing campaigns are directed to each one of the customer segments. And what we've seen by implementing this strategy is stronger growth levels and originations across our -- the retail product segments. For example, mortgage loans had a very strong growth in terms of originations versus last year, thanks to this approach of these proactive strategies in order to try and grow in certain segments that we're interested in. . So it's a lot of internal changes in order to improve the commercial strategies, implement the best practices across all the branches and employees in order to drive growth. at the customer level and to use the digital accounts to continue increasing the customers available that we can cross-sell to other products and services. So the digital accounts are very important for us as well. And we've seen a very high cross-sell ratio and growth in terms of other products and services from these customers into the bank.

Our next question comes from Mr. Ernesto Gabilondo. Please go ahead, sir.

Thank you. Hi, good morning, to Rodrigo and Pablo, my first question is on your reserve coverage ratio. So can you remind us how much additional provisions does Banco de Chile continue to have. And when do you expect to have a more normalized level in your reserve coverage ratio? My second question is on asset quality. So you're guiding a cost of risk of 0.9% for '23. So how should we think about this ratio for 2024? And my last question is on your effective tax rate. How should we consider it on the lower inflation levels?

So the coverage ratio that we have today is close to 3x long-term levels is closer to 2x. What's driving this high level or higher than peers' coverage ratio, is -- we have a large -- we have the leading level of additional provisions in the industry. You can see this on Slide 16. And this amounts to CLP 700 billion. So it's reasonable to expect in the long term or the medium term that we should probably return to levels similar to what we've had in the past, which is closer to the 2x. The second question, can you repeat the second question, please?

Yes, of course. Second question was on your cost of risk. So for this year is 0.9% -- how should we think for 2024?

So cost of risk. We have to continue to see in how the pandemic and customer behaviors affect the long-term behaviors in terms of repayment and payment behaviors and as well as how the evolution of the economy continues. So if we look at the baseline scenario that we're expecting is is below trend growth, I would say, below 2%, as you saw in the presentation, and this should translate in -- and to a level that should slowly be returning to the long-term levels that we've seen in the past, which is around 1.1%, 1.2%. And for cost of risk. So we're -- we think that's a reasonable level, but we always have to take into consideration that we have to see the permanent impacts of the pandemic and customer behaviors and the evolution of the economy in that figure.

Okay. Understood. So 1.1%, 1.2%. And if you release provisions, could it be more at 1% or that the 1.1%?

The 1% -- I would say the 1.2% would be -- it would be closer to the 1.1% than the 1.2%. Normalization would be throughout the remainder of next -- throughout the next year is reasonable. And in terms of provisions, it's something that's decided at the Board level based on different economic factors, a viewpoint, there is CLP 700 billion there, so it could be buried the relationship between cost of risk and the release of those provisions if that were to occur at some point in time in the future. And the effective tax rate. Is with inflation of around 3%, the effective tax rate should be around 23% Banco de Chile.

Okay. Thank you very much. It looks like we have no further questions at this point. I'll pass the line back to the team for the concluding remarks.

Thank you for listening, and we look forward to having our next conference call with you. Bye.

Thank you very much. We'll now be closing all the lines. Thank you very much, and goodbye.