Good afternoon, everyone. Welcome to Banco de Chile's First Quarter 2024 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; Pablo Mejia, Head of Investor Relations; 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 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 for attending this webcast today, where we will present the financial results and achievements of Banco de Chile during the first quarter of this year. We are proud of our overall performance during the quarter. Once again, we led the industry in net income and profitability, capitalization and risk, among other figures, demonstrating our capacity to generate consistent and solid results overtime. Following the thorough view of the previous quarterly call, we will begin our presentation with a brief analysis of the macroeconomic conditions and competitive landscape we faced. Then, we will present the most relevant achievements in our strategic initiatives and finalize with a deeper analysis of financial results. Please go to Slide number 3 to begin the macro environment discussion. The Chilean economy is growing again. The activity posted a significant cyclical recovery at the beginning of this year, after the chart macroeconomic adjustment mainly in 2023, when the economy grew only 0.2%, one of the lowest figures in the region. Nevertheless, it's important to be aware of two main aspects related to the recession seen last year. First, the subdued growth resulted from the tightening monetary fiscal policy especially between 2022 and 2023. This adjustment was necessary to correct the macroeconomic imbalances that occurred during the pandemic, such as increases in inflation, domestic demand and external savings among others. Second, the CPI in 2023 returned to their policy rents. The current account deficit declined to pre-pandemic levels and fiscal debt remained below 40% of the GDP. The normalization of these figures provides further reasons to expect a more sustainable recovery for the country. Undoubtedly, the macro scenario looks better today. According to the monthly GDP figures, the economy went up by 2.5% year-on-year in the first quarter, posting the highest expansion since…

Thank you, Rodrigo. I would like to begin with our strategic advances. Please go to Slide number 8. The strong results that we are consistently posting are fruit of a sound strategic pillars based on customer centricity, productivity and sustainability, which we deployed through six core priorities as listed in the middle of this slide. Through these priorities, we are sure that we can meet our midterm goals as shown on the right of this slide. First, we have a Net Promoter Score of 76.4% at March 2024, which is 340 basis points above our goal and our corporate reputation is amongst the top three in Chile. These metrics are assessed by reputable external firms that are independent from us. In terms of market share, we aim to be the leader in both commercial and consumer loans as well as demand deposits denominated in local currency. In cost to income, we have performed much better than our target, although this has been partly fostered by our solid top line, we should be able to keep on improving our efficiency through the productivity initiatives that we will explain later in the presentation. Lastly, we are confident that we'll keep leading the industry in terms of return on average capital and reserves in the long-term. In the next slide, we'll review some of our main accomplishments and their key strategic areas, digital banking, efficiency and ESG. Let me start with digital banking. Please move to the next slide. In our commitment to being the best bank for our customers, we continue to make significant strides in digital innovation. This quarter, we launched the new digital savings account, FAN Ahorro that allows customers to make profits from their cash balances, widening the investment alternatives for current and new customers. Furthermore, we have implemented…

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. Ernesto Gabilondo from Bank of America. Please go ahead, sir. Your line is open.

Thank you. Hi, good morning, Rodrigo and Pablo. Congrats in your results and thanks for the opportunity. My first question will be in your reserve coverage ratio. You'll be expanding the loan book above the industry levels. We'll be growing again in consumer loans and then you will have to recognize these new credit reserve requirements methodology next year. Just wondering, where should we think about the reserve coverage ratio in the medium-term? My second question is on market related revenue. This line has been very volatile. What should we expect for this line, if we consider this, if the IC payment, would that be impacting this line? Or what should be the net impact in Chilean pesos of these FCIC payments overall? And then, my last question is on FAN. We have seen it has been growing nicely in terms of digital deposits. But how much are you doing in terms of digital loans with FAN? Thank you.

Hi. Thanks for the questions. In terms of the coverage ratio, today, we have a higher coverage ratio than we've had in the past because of the additional provisions that we've maintained on the balance sheet. In the long-term, we should consider that the levels of coverage ratio considering everything that is going on and considering an improvement in the economy etcetera should tend to return to the levels that we had prior to the pandemic, which is around the 2x, maybe slightly lower, but around the long-term levels that we had prior to the pandemic. We don't think that we should have what we had during the peaks of the pandemic, 3x, 3.5x, that's very high. We should return to those levels. In terms of the market revenues, I'll pass the call to Daniel Galarce.

Yes. Hi. In terms of the market revenues, you have to consider that there are some line items in the P&L that you should consider jointly. For instance, the effects of exchange rate that you can see in our P&L are also very related with the effects that you are seeing in trading derivatives for instance. Since trading derivatives have an FX exposure as well. So, when you look at the core business in terms of the effects, you shouldn't see a very important volatility. Actually, we are seeing some more midterm figures in terms of FX spot for instance and also the management of our intraday and overnight position as well. So, there is no issue related to the market revenues. And in terms of the FCIC, the guidance that we provided in our press release is already considered the effect of the repayment of the FCIC. And actually, the FCIC of course will translate into lower revenues. However, considering the FCIC stand alone, but you have to consider that we are also benefiting from the decrease and the expected decrease in short-term interest rates on the funding of our position and our asset position. In addition, the net interest margin in loans basically lending spreads should also increase a little bit considering that some of the former loans are maturing as well with lower spreads. So, all-in-all, we are going to have an effect in our P&L from the FCIC, but it's basically offsetting some other effects that will benefit our NIM as well.

And in terms of our strategy and overall strategy for growth in Banco de Chile. We're a universal bank that's in all segments of the economy. One of those areas obviously is consumer loans and we've been growing quite strongly over the past few years. We've been gaining market share in this area. Today, we have a market share of almost 19%, and we expect to continue growing in the segment because it's a very attractive segment for us, it's a segment that we want to be in, a segment in the middle- and upper-income individuals and we're using the FAN account to continue expanding our customer base. So, by using these, the strategy, the focus in this area, where we have maybe I can say four pillars to obtain the success of continuing to grow. So, the adoption of digital solutions in order to improve customer service and for customers to receive their products quickly, also more intelligence in commercial campaigns and accurate business analytics in order to provide the customers with the products and services that they want to the challenge that they need and understand their needs. We're also very active in preapproved loans. And we've been implementing controls and procedures in order to improve the commercial discipline across the entire bank. So, that's really been helping in order to drive sales within the bank originations of consumer loans and is one of the reasons why you can see that we continue to grow in consumer loans, but we've maintained a very good NPL ratio during this time. We haven't grown NPLs of this product significantly over the past year. It's pretty much the same. And I think it's worthy to mention that we have a fantastic loyalty program in the credit cards. So, customers using our credit cards, received fantastic benefits, and this has been driving the usage of our cards, especially in this time of higher digital use of more digital channels rather than cash.

Thank you very much, Paolo. Super helpful. Just a follow-up in FAN. As you mentioned, you are using a lot of these digital savings accounts on FAN to leverage that on the consumer portfolio. But just wanted to understand, if those loans are digital or are the traditional ones, just wanted to understand, how much is going on digital loans?

You have to take into consideration after the pandemic, most customers are very active in using digital channels. Even before the pandemic, more than half, if I'm not mistaken, were originated online and that continues, that's by far the case today. Most of consumer loans are originated online, and through these new digital channels, it provides us with a new customer base to increase the level of customers. If we look at, for example, the digital consumer credit loans, we have 84% is being done online. If we look one year ago, we had 66%. We look at time deposits, for example, which is a product that customers are using more actively today, because they understand the benefits that they receive and because of the higher interest rates. It was 75% were being done online one year ago and today it's 81%. This is not only better for customers, but it's also better for efficiency and productivity. That's one of the areas that we've been focusing in our productivity in the bank to continue improving cost savings.

Our next question comes from Mr. Tito Labarta from Goldman Sachs. Please go ahead, sir. Your line is open.

Good afternoon. Thank you for the call and taking my question. Two questions. I saw you increased a little bit the ROE guidance for the year, but with inflation running a little bit higher and the economy is doing relatively well, do you think there could be some upside to that? I mean, your ROE this quarter was still well above 20%. Do you think that ROE could maybe remain above the 20%, maybe a bit longer than expected, given that inflation is still a little bit higher in general? And then the second question in terms of your capital ratio, as you show, you're better capitalized than your peers, you have higher ROE loan growth still in the mid-single-digits. Is there room to increase the payout even more? Or what's the right capital ratio? Why do you feel you need to have more capital than your peers? Thank you.

I think on our baseline scenario for ROE is, Daniel Galarce to touched base a little bit in terms of them, the main drivers there is what's occurring in terms of our interest earning assets and how this is evolving. What we're seeing is a reduction in the second half or actually beginning now in April in our balance sheet, because of reduction in our liquidity on our balance sheet through the payment of FCIC. Since this is reducing, we're generating less net interest income. The ROE should trend down in the second half of the year, because of this reduction. Inflation, actually, it's a little bit up, but it's also a negative impact, if we compare year-on-year. Our estimates for the end of the year is around 3.6%, 3.7% for the variation of the U.S., which is negative when considering last year around 4.7%, 4.8%. But we have some positive factors. we have the reduction of the overnight rate also affects us positively in terms of funding. We're being more proactive in terms of the commercial activities in order to manage the time deposit pricing better as well. We're seeing improvements in all the families of products in terms of spreads and repricing as older loans are requesting to higher interest rates. There's some negative factors as well. Fees, we don't see fees growing that strongly. It's low single-digits. Cost of risk, we expect the economy to be improving, but generally, there is a lag between the economy improving and when we see that pass-through cost -- around 1.2% is reasonable in terms of our long-term level and costs. We expect to be around that mid single digit range. So, you could argue that maybe with change in inflation or a little bit stronger economy, maybe we can grow stronger. But in our baseline scenario, it's what we mentioned in the call, slightly higher growth than the industry in terms of consumer loans. In terms of consumer loans and mortgage loans, and overall loans growing slightly above as well, but less so in larger corporates. In terms of capital, I'll pass the call to Daniel Galarce.

Yes. In terms of capital, as we have mentioned in the previous calls, we feel comfortable with the GAAP, with the positive GAAP we have today with respect to the regulatory limits. And regarding the payout ratio notwithstanding this positive gap, we believe that this is a regulatory framework that is still evolving. So, we will have fully loaded limits and thresholds by 2027 something like that. So, we believe that at this point we are noting -- we don't want to change dramatically what we have done in the past. So, basically, in terms of the payout ratio, we are assuming the normal level of payout that we have paid over the last decade, I would say. And the last two years have been a little bit special in that sense. So, we believe that we are going to return to our midterm levels in the short run.

Next question comes from Mr. Yuri Fernandes from JPMorgan.

I have a follow-up on FCIC. I'm sorry for coming back to this topic. I know it has been almost two years discussing the end of FCIC, and we still have questions on this topic. But I was trying to estimate the impact for your ROE of this payment. And with some information you gave us, I guess it may be possible. So, basically, you paid CLP3.1 trillion now, right, on your total CLP4.5 trillion, CLP4.6 trillion exposure. And you also mentioned kind of this, if I'm not mistaken during the presentation, that given you should pay the second tranche in July, that this is mostly cash, right? It's so, it could be yielding closer to the benchmark rates around 6.5%. And if you have to pay the 0.5% cost on that fixed line, we are talking more or less about a 6% spread. When we apply this spread on the balance, the CLP4.5 trillion, CLP4.6 trillion, about a 4% ROE on an annualized basis, but you don't, you are not going to have this for entire year, right? You just paid one trench now. You pay a second trench in July. So, I'm getting here, something a little bit, around 2% of ROE headwind going forward, like 2025 versus 2024. I know your guidance for this year already include that's sake, like maybe moving parts. But I'm trying to get here, what would be the normalized of the ROE for you in 2025 without this design? So just checking with my math, like, it's a long question. I'm trying just to get your color of how relevant should be the payment of this line for the next year like the kind of the adjustment. And then I can ask a second question after this one. Thank you.

Hi, this is Daniel Galarce again. As we mentioned earlier, of course, the FCIC will have an impact in our P&L that is pretty clear. But you also have other effects that are offsetting importantly this negative effect. As Pablo mentioned earlier, the overnight rate is expected to continue to decrease. So, the effect of lower revenues from the FCIC will be offset by the lower cost of funds, particularly in terms of our time deposits. So, basically, you will finally have a net-net that probably will be a little bit negative. However, that is already incorporated in the guidance. We are giving you in our press release for our NIM and also for our ROE. In terms of math that you can do, you are right. However, you have to consider everything together and not only the effect in isolation to the other effect we are going to see in our balance sheet.

Super clear. ROE, I understand, is also related to your excess capital. This could be higher or lower depending to pay more dividends or not. ROE can is also management of how much capital allocated to the business.

Our forecast for ROE is considering our normal scenario in terms of dividend payout. Our normal scenario in the past has been 60% of our net distributable earnings.

Super clear. If I may, second question on fees, especially on fee expenses. We had an implementation of the interchange caps, right? I was reading some news articles talking about banks potentially cutting loyalty programs, reducing the points of credit cards, and things like that. If you can share what has Banco de Chile been doing in that regard, if you are also cutting a little bit the expenses to offset the pressure on the revenue side, that would be great. What you are doing and how important those measures can be? Thank you.

I think, in general, if you look in the past and what the industry has done with changes in regulations and making, for example, the credit card business, you have to think of the credit card business or any product as a whole. For example, the credit card business, you have to take into consideration all the revenues it generates and how this is being used. In the past, the clear example of adjusting the loyalty programs is when, for example, 24 banks would offer up to 24 months no interest, minimum payment and because of changes reduction interest rate cap in Chile made the product less profitable. A lot of these programs started to cease to exist. Most banks only offer three months, a couple six months, some only don't offer anything. This is what you can expect from this adjustment in the acquiring business and the interchange fees. We don't have anything set as of yet, strong adjustments in terms of cost savings for the loyalty program. This is still being analyzed and being analyzed on how we'll be implementing these changes. But it's something that we're taking into consideration and we'll give an update when we have that implemented.

[Operator Instructions]. Our next question comes from Ms. Neha Agarwala from HSBC Global Research. Please go ahead, ma'am.

Hi. Congratulations on the results and thank you for taking my question. Just a quick one in terms of your digital initiatives. All the banks are trying to put out the digital initiatives that are offering more and more features on their app. Where do you think Banco de Chile stands versus peers? What are the strengths versus your competition? What are you doing better and where do you think are the gaps in terms of your digital offerings, which you would like to implement in the coming months? Thank you so much.

I think the banking industry in Chile has a strong digital presence and has strong digital products. It's not a nice to have, it's something that you must have. It's a continuing evolution of advances in these products. We've been very -- we are one of the large banks, one of the later banks to come out with our digital product, which is the Cuenta FAN. We've come out with a couple of new initiatives for digital products, the current account, fund for teenagers, fund for SMEs. We've been very proactive in terms of growing this digital base. In terms of comparisons with other banks, I think, today, it's not a nice to have. You have to be very proactive and have a very good quality product that provides the customer services and products that they want through the channels that they demand and today that's the digital product. So, I would say that the large banks are very competitive in their products. We have a high-quality product and this will continue to evolve as things change. But I think we're doing a very good job today and I can't pinpoint one area that needs strong improvement or anything like that. I think we can always continue to adjust and provide a better product. But today, we have a very high-quality product in the Cuenta FAN, for example, has a better Net Promoter Score than the overall of the bank. So, the bank has a very high Net Promoter Score of over 75%. Cuenta FAN has even higher number. So, we're very happy with the levels, of digitalization that we have today.

Our final question comes from Mr. Andres Soto from Santander. Please go ahead, sir.

This is related to asset quality in your mortgage portfolio. You mentioned you provided a very interesting breakdown in your provisions what pertains to mortgages. I'm doing simple math. We can see that the cost of risk of the mortgage portfolio, it is now at 1.2%. It used to be 0.7% just one year ago. So that suggests a rapid deterioration. Do you see room for additional deterioration in this segment? And what is really needed for this to start to improve and when are you expecting this improvement to happen?

In terms of NPLs and cost of risk, what we can see is that what's important to mention is that we are in negative, coming out of a negative cycle. We see some improvements. But generally, there's a lag between the improvements and what we see in the loan book in terms of demand and also, in terms of credit quality. So, as you mentioned there has been and it's something that we've seen in other industries as well or other banks as well, a rise in NPLs in different segments. And why has this happened? This has happened because households have less disposable income because of the rise of cost of living because of weaker employment opportunities. We think that this is something that should trend down as long as the economy improves. It has a high coverage ratio, these mortgage loans. So, we don't see an issue there, but it is a little bit more difficult situation for individuals today in Chile because of the high inflation that we've had over the past few years and the weak economic scenario.

Yes. Hi, Andres, this is Rodrigo Aravena. I'd like to highlight that today for the first time in several quarters, today we are raising our GDP forecast for the future. So basically, we're aware about the improvement of expected macroeconomic conditions for the future. But still, the economy is facing some challenges, some pressures. For example, it's very important to give in mind that the interest rate today at 6.5% remains in more net territory and more for the economy. The same for inflation. Today, we have an inflation rate which is close to 4%, which is still above the more normalized level for Chile, which is around 3%. So, my point here is that we're expecting for the future improvement in terms of economic conditions, especially those that are relevant for disposable income for the people. But the economy today is still under some pressures, there are some uncertainties for the CMF. For example, on the political side, there's going to be important elections to monitor by October this year, the municipal election. Some reforms are discussed today as well. So that's why given our, that in our baseline scenario, the economic conditions would be better in the future. That's why we're expecting a normalization and an improvement in terms of asset quality indicators, NPLs, et cetera. But in an environment where, today the economy is under pressure with below trend, growth with still higher improvement rate, it's important to analyze how fast the economy will convert to the more normalized condition.

Thank you, Rodrigo. Do you have any timeline? I mean, do you expect this deterioration to get worse before it gets better and when will you be forecasting a turning point for NPLs in Chile?

It's reasonable to expect second half with better figures compared to the first half. That again is very important to analyze the evolution, for example, the monetary policy and also investment, because there is going to be important events to monitor in Chile. But in our baseline scenario, when we consider that in the second half, the interest rate will be lower, the inflation rate will be lower as well with a better economic growth. All these conditions are consistent with better asset quality in that time. That's why given the current information, I would say that, it's reasonable to expect improvements since the second half of this year. I mean, probably today, we are in the turning point, an inflection point in terms of NPLs and asset quality indicators during this first half of the year.

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

Thank you, Felicia, and we hope to have you with us for our next conference call results. Thank you very much.

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