Good afternoon, everyone, and welcome to Banco de Chile's Second Quarter 2024 Results Conference Call. If you need a copy of the management financial review, it is available on the Company's website. Today with us, 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 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 joining this earnings call, where we will review the financial results achieved by our bank during the second quarter of this year, a period when once again our bank demonstrated its unquestionable leadership marked by its strong capacity to generate sustainable and robust results over the time. The performance of Banco de Chile was even more recognizable, especially considering the several challenges that remain in the macro environment. Some of the main achievements include, we led the industry in net income by posting CLP 324 billion equivalent to an ROE of 24.6%. Consequently, the return on equity was 23.6% in the first half of the year. We also continued leading the industry in capitalization by posting a strong 13.8% CET1 capital. On the efficiency front, we had significant advances in cost control, as total expenses grew only 3.2% below the annual inflation rate. Consequently, the efficiency posted an impressive ratio of 55% in this period. As usual, we have divided this presentation into three main sections. First, we will share our analysis of the business environment and our update on the macro side. Then we will move towards our advances on the three pillars. And finally, we will present our financial results in depth. Please move to Slide number 3 to begin our macro analysis. As can be seen in the chart on the left, the Chilean economy continues posting signs of cyclical recovery. In the first quarter, the GDP increased by 2% year-on-year, retained the highest figure in two years. This acceleration was explained by the greater dynamism in exports, which expanded by 3.2% year-on-year and were influenced by better terms of trade and positive growth in trade partners of Chile. Total consumption showed a slight improvement since it increased by 1.2%, posting…

Thank you, Rodrigo. I would like to begin with the strategic advances. Please go to slide number 8. We continue achieving solid accomplishments on the deployment of our strategy that focuses on customer satisfaction, efficiency and long-term sustainability, which we implement through six key priorities as shown in the center of this slide. First and most importantly, our target is to be the most profitable bank amongst our peers. Depending on the macro scenario, this means long-term return on average equity should be around 18% in the context of normalized yield curves and inflation within the target range of the Central Bank. In cost-to-income we have performed much better than our long-term target although this has been partly due to our strong top-line growth particularly on the grounds of strengthened customer income. We are confident that we will continue improving our efficiency levels through the current and new productivity initiatives some of which we will go over later on in the presentation. In terms of market share, we aim to be the leader in both commercial and consumer loans and demand deposits denominated in local currency. Finally, we continue providing an exceptional experience for our customers and contributing positively to society. Our commitment has consistently resulted in excellent levels of Net Promoter Scores. Additionally we are proud that our corporate reputation ranks amongst the top three in Chile. These achievements are validated by assessments from reputable and independent external firms. In the next slide, we'll review some of our main accomplishments in our key strategic areas of Digital Banking, efficiency and ESG. Let me start with Digital Banking. Please move to the next slide. During the second quarter of 2024 we continue to enhance and develop new digital solutions. This quarter we integrated new features into our main banking app…

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. [Operator Instructions] The first question comes from Mr. Ernesto Gabilondo from Bank of America. Please go ahead, sir. Your line is open.

Thank you. Good morning, Rodrigo and Pablo. Thank you for the opportunity to ask questions. My first question will be on your guidance was revised to the upward in terms of ROE to 21%. So can you elaborate on what changed to have this higher guidance? You mentioned some factors, but I would like to have your full picture. And then second question will be on your new acquiring business. So given that you have already some incumbents with acquiring companies, what do you think will be Banco de Chile's advantage with this new subsidiary against other competitors? Thank you.

Hi, Ernesto. Thanks for your question. Well, we've moved up our guidance to around 21% because of the good results that we've had year-to-date. One of the things that have changed is the macro, which I think Rodrigo would like to take a moment to discuss.

Yes, perfect. Hi, Ernesto, thank you very much for this question. I think that it's very important to be aware that the evolution of the trend in terms of margin, profitability, et cetera are a perfect reflection of some important trends and drivers of the economy. So having said that, we have to mention that today we have a different scenario for interest rate, for example, given different inflationary pressures discussions in Chile and also considering the recent discussion in terms of interest rates in the rest of the world. Today we have different expectations for the overnight rate for Chile for the end of this year. So specifically as we discussed in the slide number 5 of this presentation today, we are expecting a 5.5% interest rate by the end of this year. But in the beginning of this year we were expecting an interest rate of around 2.5%. It's very likely that the interest rate in Chile will remain about 5% probably until the end of the next year. So this is one important factor. And also we can rule out the possibility that the terminal interest rate in Chile will be higher compared to the levels that we were expecting last year and also in the beginning of this year. So the new scenario for interest rate is an important factor that we have to consider in the new guidance in the expectation for profitability for this in the next year as well. We have a similar story in terms of inflation. Today we are expecting an inflation rate between 4% and 4.5% as a consequence of some changes in electricity bill prices in Chile. And also we are just upward adjusting the forecast for CPI. Probably the inflation rate will converge towards the 3% target only by 2026. So this is a second factor supporting the better perspective for profitability in the bank for this in the next year. And one other important aspect to consider is the slowing of the yield curve -- I mean the difference between the long-term interest rate compared to the short-term interest rate because today we have different reasons to expect a more steadiness in the yield curve for the future. So when we consider these three factors, today we have different reasons supporting the year to have above trend profitability at least for the short-term. And these are the main changes compared to what we had in the beginning of this year. So in terms of numbers Pablo can you provide some more specific figures?

So I think in summary what Rodrigo was mentioning this affects directly NIMS, so the higher inflation is assisting our net interest margin. The mix of our loan portfolio, we've grown very well in terms of consumer loans, and also the reduction of the overnight rate and the still good levels of demand deposits have helped our funding. So this together with growth in fees, growth, a good level of cost control and operating expenses, and good levels of cost of risk, leads us to expect a ROE for this year of around 21%. And if we look for the future periods, it's reasonable to expect, as Rodrigo said, the terminal interest rates could be higher, inflation could be stickier. So it's reasonable to expect returning back to the levels or long-term levels of around 18% or maybe higher in terms of where the economy ends in terms of the macro. So it's reasonable. One of the things that we highlight as well is that our goal is to be the most profitable bank in Chile in terms of return on average capital.

Excellent. Thank you very much, Pablo and Rodrigo. And for the acquiring business?

Okay. So just a couple of ideas. First of all, always it's very important to keep in mind that in our long-term strategy, we have defined different pillars. And one of that is related with the customer centricity approach that we have. So in that environment, we are very proud for having today a stronger value proposition for our customer, where in the short term, we're going to be more focused on our business customers, especially those related with the more massive segments. I mean, SMEs and middle market companies. We don't have today a specific target in terms of a specific goal in terms of market share, in terms of some profitability indicators, but what we can say now is that we aspire to be a very relevant player in the industry in line with Bank of Chile has been in different activities, segments and products that we have historically and today. I don't know, Pablo, if you want to add any idea.

I think in line with that piece, our expectations for fee growth is to grow in the mid to high single digits. And one of the main drivers of that is customer growth. So if we look at current account balances, for example, in the last 12 months, current account, we've been growing 6%. So it's one of the drivers to increase the number of customers in the bank. Also, Quinta Fund helps to bring in new customers, which we can cross out to other products and services. Our mutual fund business has been very strong. We've grown at the end of the period versus the same period last year, around 50%. On average balance is just a little bit lower, but that's been very strong driving fee growth. So all of these initiatives together with the BPAGO will continue to assist in maintaining those mid to high single digit growth in terms of fees.

Perfect, perfect. Thank you very much, Ed.

Thank you very much. Our next question comes from Daer Labarta from Goldman Sachs. Please go ahead, ma'am, your line is open.

Yes, hi Rodrigo, Pablo. Thank you for taking my question. My question is on your outlook for loan growth. You mentioned that for this year, you're expecting around 5.5% of loan growth. I wanted to know about your expectations for next year? Are you expecting any improvements if so, from which segments? And then I had a second question, but I can ask later.

For the loan growth, the 5.5% is what we're expecting for the industry. So, if you look at the year-to-date figures, the industry has been a little bit slower. Every player has a little been closer -- a little bit lower in terms of loan growth. What we're seeing in the second half of the year may be in line with the lower interest rates that we've seen throughout the last 12 months. There could be an acceleration, which we think could allow us to have loan growth slightly above the industry that we're expecting is 5.5%. And which products, what we're seeing is still decent levels of loan growth in mortgage loans, partly driven by inflation. Consumer loans has been growing well, relatively well in the scenario, the unemployment rates continue to be stable. We're expecting the second half of the year good in terms of the economy. And that we just believe that consumer launch should probably be around the level of those mid-single-digits, around the 6%. In terms of commercial loans that's been a little bit weaker. SMEs had been growing closer to the 1% level. Corporate lending has been a little bit weaker than it had been in the past from all the uncertainty that's happened over the last few years. So, we have to see how that unwinds at the end of the year if that comes through to reach these numbers for the industry and for us. And in the medium term we think that Chile is a country that has a loan to elasticity of around 1.5 times. That's a variable that can change depending on the cycle. But we think that most likely it's around that level which leads us to believe a level mid to high single-digit growth for loans in the industry and for us slightly above that. And important to mention that we want to be leaders in terms of commercial loans and consumer loans in the middle and upper income segment.

Perfect. Thank you so much Pablo. Second question if I may is just on efficiency, right? So I saw that you posted efficiency levels of around 36% throughout June. And in the guidance even though you decreased the guidance for efficiency this year is around 37%. So, what would explain the higher growth in expenses versus fee and net interest income growth throughout the rest of the year?

Actually in terms of operating expenses what we're expecting is pretty stable levels of growth in terms of flattish growth in terms of year-on-year. If you look at the full year figure, we should be pretty close to what we had at the end of the year and that's what we're expecting for that 37%. We had a lot of different projects being put in place optimization of the branch that work and their resources new plans in order to improve the productivity throughout the bank in terms of marketing expenses and in different areas of Banco de Chile. And all of this is helping us control expenses accordingly. And that's why we think versus prior quarters, which we mentioned growth in line with inflation, which is around 4%. And today we're thinking that inflation -- that growth number will be closer to the zero or slightly above.

Perfect. Thank you so much.

Thank you very much. Our next question comes from Mr. Yuri Fernandes from JPMorgan. Please go ahead, sir. Your line is open.

Thank you very much, guys. I have a quick one on loan growth in elections like given you have elections in Chile this year. Just trying to understand how should we think. Like local elections is this good or bad for loan growth? And next year on presidential election is also this good or bad historically? And then my second question I think this is the most classic question for you guys. It's about dividends and excess capital. What should we expect? I know usually you declare in January and February. But I think in slide 18 that you put in the presentation it is a pretty shocking one, right? You have higher ROEs. Loan growth is not really accelerating a lot in Chile. So you are accumulating even more capital. So my question is when should we see a special dividend from you or I don't know even M&A? How to think about capital? Or will Banco de Chile just keep accumulating capital from here? Thank you.

Thank you very much Yuri for the question. I'm going to take the first question then Daniel Galarce is going to take the second one. In terms of the cycle that we have today, you're right there's going to be different elections in Chile. This year in October there will be elections for mayors in Chile municipal elections, which basically it's extremely important to analyze not only the results in the main cities of Chile, but also in terms of the composition in different city councilors et cetera because historically the results of the election has been a very strong leading indicators of the election -- the presidential and the Congress elections, which will be held next year. So that's why we are not talking about only about municipal elections, but also we are aware that the result of this election probably will anticipate there some results that we're going to have next year in the Congress election. But having said that we have to say that Chile today is growing. We are expecting an economic growth of around 2.4% for this year. I'm saying this because we have to remember that between 2014 -- I mean during the last 10 years the average economic growth in Chile has been 1.9%. So I'm saying this because today we are having an expansion above the level that we posted on average in the last 10 years. So that's why we have some green shoots in the economy. The main challenges for Chile are related with investment, especially, in terms of some red tape, in terms of some specific areas like construction and in other areas. But despite this concern we have a positive view in terms of the evolution of net export consumption et cetera. But as you said and also as we mentioned as well in the first part of this call elections and political discussion in Chile is one of the ways that we have to monitor for the short-term. In terms of your second question Daniel Galarce? Daniel?

This is Daniel Galarce. Regarding dividends as you said, well the decision is made in March every year of course and the decision is made by our shareholders. We normally talk about in the baseline scenario of about 60% payout dividend in the long run of course. And in terms of capital and our dividend distribution of course, you have to remember that we are still in a process of implementation of Basel III, although some of the uncertainties have dissipated in terms of Basel III as well and the implementation capital charges buffer and so on. There are still some things that need to be clear in the future. And given that we have a capital position with which we are pretty comfortable in order to address all of these challenges in the future in terms of capital.

Okay. Super clear. So Rodrigo just on your first one on the elections. Like maybe loan growth will be better not for elections per se but just a little bit of better economic activity, right? That's kind of the message you are giving.

Correct. The economic activity is positive.

Yes. So in terms of the – we have a positive view in terms of activity for the future when we compare with the growth that we had seen during the last 10 years. But again, we have to analyze. We have to analyze the result, the composition, the discussion. But when we analyze some more recent trends, et cetera we have enough reasons to expect still above trend activity for this year and probably for the next year, despite some uncertainties on the political area in the short-term.

Super clear. Thank you very much, guys.

Thank you very much. Next question comes from Mr. Andres Soto from Santander. Please go ahead, sir.

Good morning, and thank you for taking my question. I wanted to ask about the additional reserves that you still have on your balance sheet. It's CLP 700 billion. You just mentioned less than 10% of that will be required to cover the additional provisions from the update in the standardized consumer model. So I would like to understand what is your view regarding those? Are you planning to start to release those reserves at some point? Are they still necessary? And what is your view overall of the credit cycle in Chile?

Andres, we have a good level of reserves and coverage CLP 700 billion as you mentioned well above our peers. Still as Daniel mentioned and Rodrigo, there's still uncertainties in the market. And we don't have a clear trigger of when we would release additional provisions other than what we mentioned in terms of the consumer loan model, which will be implemented in January of 2025. And it has a level of around CLP 66 billion of cost to implement that rule. In terms of what will happen with the rest, we can't rule out that in the future a portion of these additional provisions would be reversed, if we don't need them. But today we don't have a trigger for that. It is something that the Board would take into consideration at the monthly Board meeting to implement that always taking into consideration the evolution of the economy politics global factors as well when doing that.

Thank you, Pablo. And regarding the credit cycle and the evolution of asset quality across segments when we look at the June numbers for the system it looks like we finally got some level of stability in commercial loans after almost two years of continued deterioration. Are you expecting any further deterioration in the consumer segment for the system in the second half of the year? Or are we already at the peak of the deterioration in asset quality?

For the system, it's difficult to mention because it's a different loan portfolio different customers different aspects. If you think about what the economy is looking like in the future it's a stronger economy, unemployment is stabilizing. We're seeing a plateau in terms of cost of risk for us in terms of NPLs. Our customers are in very good shape. So everything points towards a better beginning. The worst has probably passed for us. We know our portfolio better. And if we look at our figures, we can see that our impaired loan book for example consumer loans is still below the levels that we had prior to the pandemic. If we look at some of the other products in the product families, it's slightly above. But we have to take into consideration that we've just come through a very high inflation period that has affected household income. The economy is very slow. Some sectors of the economy have had a lot of weakness. So the numbers that we're posting at Banco de Chile are still very good. But we think that in the second half of the year and towards next year things look positive as Rodrigo was mentioning.

Yeah. Andres, just let me reinforce the importance to monitor three key factors. Pablo mentioned some of them. But probably the key word for asset quality in the near term is normalizing right? Normalizing. Probably, the worst part was left behind us basically because the labor market is normalizing even though the unemployment rate today has been more stable. But it's important to be aware that the total employment is growing the same for labor force. The real wage bill is positive today as a consequence of the positive trend on the average real wages. Interest rates even though the Central Bank maintained interest rate in the last meeting we're expecting lower rates for the future, which also has a positive impact for disposable income. And the same for inflation so at the end of the day when we analyze the key macro drivers for asset quality all of them are consistent with I believe for normalization and a more stable asset quality in the future.

Perfect. Thank you very much both of you, and congratulations on the results.

Okay. Thank you. Thank you very much. We see no further questions at this point. We'll pass the line back to the management team for the concluding remarks.

Thanks for listening to our call. And we look forward to speaking with you on our next quarter's results. Thanks.

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