Banco de Chile (BCH) 2025 Q4 法說會逐字稿

(technical difficulty) Rodrigo Aravena. Please go ahead.

Good afternoon. Thank you for joining our conference call. Today, we will present Banco de Chile results for the fourth quarter and the full year 2025. We are very proud of the bank's performance this year. Once again, Banco de Chile delivered market leadership and superior financial outcomes, reinforcing the strength and consistency of our business model.

Starting with our financial results. Banco de Chile ranked number one in net income and return on average assets, number one in net fee income and number one in net interest margin among peer banks. This result reflects the resilience of our core revenues, solid customer activity and disciplined balance sheet management.

For the full year, we generated the highest net income in the local banking industry amounting to CLP1.2 trillion, which translated into a 2.2% return on average assets, significantly above the 1.3% achieved by the industry. We also maintained the largest market value among private banks in Chile of almost $20 billion, and we are leading the market in average trade volumes with over $25 million per day, demonstrating strong investor confidence and liquidity in our stock.

On capital, Banco de Chile remained the most highly capitalized bank as demonstrated by a CET 1 ratio of 14.5%, favourable regulatory requirements and peers. Also, our risk indicators continue to be among the strongest in the industry, supported by a 223% coverage ratio and CLP661 billion in additional provisions reflecting our sound risk management culture.

From a cost perspective, we delivered a 3.5% real contraction in operating expenses, consistent with efficiency efforts that we have implemented over the past several years that have leveraged on a digital strategy that has benefited productivity across all business and operating processes.

On the Commercial side, Banco de Chile continues to stand out in customer experience, ranking first in service quality and top of mind awareness. We also reinforced our ecosystem with the launch of Banchile Pagos our new acquiring and payment processing subsidiary, which strengthen our positioning in digital payments.

In addition, Banchile mutual funds remains the largest mutual funds managed in Chile, excluding pension funds with a 22.5% market share in assets under management. Finally, our strong performance has been widely recognized as shown by the awards on the right side of this slide, including recognition for Best Customer Satisfaction, Best Corporate Governance, Best Place to Work and Best Bank in Chile.

In the remainder of this presentation, we will provide a detailed analysis of our quarterly and full year results of 2025. Before moving on, I'd like to share a brief analysis of the macroeconomic and business environment. Please go to slide number 4.

Chilean economy growth continues posting above trend figures with a favorable shift in the composition of GDP as shown in the chart on the left. The economy expanded by 1.6% year-on-year in the third quarter, resulting in an average expansion of 2.5% year-to-date, although the annual growth rate accelerated, it's important to highlight the statistical effect of the higher comparison base from a year ago when the economy began to improve.

However, the positive news come from the composition of growth. Domestic demand increased significantly by expanding 5.8% year-on-year in the third quarter primarily driven by a strong recovery in gross investment, which rose 10% year-on-year, led by a 22% year-on-year increase in machinery and equipment.

As shown in the other right chart, the acceleration in local investment has offset the slowdown in exports, which remained unchanged in the quarter. The strong contribution from domestic demand is relevant not only because it supports positive GDP growth, but also because loan volumes are more closely linked to domestic demand than the overall economy.

This could have narrowed the gap between loan growth and GDP growth that we have observed in recent years. It's reasonable to expect the trend to continue in the near term. Monthly GDP data shows that the commerce sector grew 6.7% year-on-year in the fourth quarter, while capital good import, which is a good leading indicator for investment activity increased 19.6% year-on-year in the fourth quarter after rising 30.6% in the previous quarter.

Looking ahead, several factors suggest that this positive momentum will persist through the year. One of them is improvement in consumer confidence as shown in the bottom right chart apart from the upward trend in the overall continent, the sub index that measures the 12-month economic outlook for the country rose to 59 points, surpassing the neutral level of 50 and reaching its highest value since the first half of 2018.

Now please go to slide number 5. Overall, we have seen a normalization of the main nominal figures prices, interest rates and the exchange rate. Regarding inflation, the 12-month CPI variation ended the year at 3.5%, down from 4.4% in September and 4.5% in 2024.

The graders convergence over the Central Bank's 3% target was driven by lower inflation in the fourth quarter to just 0.1% quarter-on-quarter from 1.4% in the third quarter due to lower contribution from food, energy and core goods. Core inflation, which excludes volatile items also declined from 3.9% year-on-year in the third quarter to 3.3% in the fourth quarter.

It's noteworthy that the decline occurred in an environment of economic recovery, particularly in domestic demand, suggesting improvements on the supply side, such as lower unit labor costs due to productivity gains.

Depreciation of the Chilean peso against the dollar also showed to ease inflationary pressures. Given these trends, the Central Bank continues normalizing monetary policy by reducing the policy rate by 25 basis points in December to 4.5%.

According to the forward guidance provided in the December monetary policy release, further rate cuts are expected this year toward the estimated neutral rate of 4.25%. Updated macro-forecast and guidance will be provided by the Central Bank in its March monetary policy report. In these more favorable environment, the Chilean peso has strengthened against the dollar, narrowing the gap relative to the global dollar index, the DXY as shown in the bottom chart.

Key drivers include improved terms of trade supported by higher copper prices and better expectations for the Chilean economy. I would now like to present our baseline scenario for this year. Please move to slide 6.

We expect about Chilean economic growth of around 2.4% in 2026. This expansion should be supported by strong domestic demand, driven by both investment and consumption as confidence improved, monetary ease continuing to take effect and corporate price rise.

Given better-than-expected global conditions and potential improvements in domestic factors, we are now led in our bias to beat GDP outlook. We also expect inflation to convert to the 3% target in 2026. This forecast is based on the absence of further adjustment in regulated prices comparable to those seen in electricity tariffs in previous years, the impact of peso appreciation on tradable inflation and lower unit labor costs resulting from improved productivity.

In this scenario, we expect the Central Bank to reduce the policy rate to the neutral level of 4.25%. We can roll out an additional reduction to 4% if the peso appreciate further or if supply side pressures is more than expected.

As we mentioned in previous webcast, this forecast are subject to risk. The evolution of the global environment is particularly relevant for Chile given our high degree of integration into world market. Developments such as US and Chinese GDP performance as well as geopolitical tensions remain critical to monitor.

On the domestic front, the geopolitical agenda, will also be important considering the recent government transition and the possibility of a more market-friendly quality framework. Before moving to our quarterly results, let's begin with a review of the industry landscape.

Please go to slide 7. The banking industry continued to show resilience even as inflation and interest rates move toward more normalized levels as shown on the chart on the top left. Quarterly net income for the industry was CLP1.2 trillion with a 15% return on average EBIT, a moderate result from peak levels, but it's still in a healthy and sustainable range. Turning to asset quality. The top right chart shows that NPLs remained steady at 2.5% with a coverage ratio at 1.4 times.

In terms of loans to GDP, this ratio reached 75% as of December 2025, extending the below trend behavior observed in recent years. Loan demand remains subdued in 2025 despite lower interest rates and signs of improving investment, particularly over the second half of the year.

The bottom right chart further reinforces this. Since December 2019, total loans for the industry have contracted 2.6% in real sense with consumer lending down around 17% and commercial lending down close to 11%, while mortgage remains the only segment showing growth, rising 19% over the same period.

Looking ahead, industry projections point to a rather reactivation in 2026. According to our baseline scenario as presented in the fourth quarter 2025, financial management review report, total loans are expected to grow around 4.5% in nominal terms this year, with commercial lending returning to positive real growth helped by improving business sentiment, a big capital expenditure by companies and a more supportive interest rate environment.

Consumer and mortgage loans are expected to expand between 4.5% and 5% nominal, consistent with a moderate rebound in household consumption and a demand for housing that is expected to keep on growing. In terms of profitability, it's likely to stabilize, as the industry net interest margin is expected to ramp from 3.5% and 3.7%, reflected a yield curve that remains relatively flat and normalized inflation near to the Central Bank's 3% target.

Credit risk metrics should continue to improve gradually with NPLs projected to decline toward 2.2% to 2.3% and the credit loss expense ratio should read a range of 1.2% to 1.3%. Overall, this trend suggest a more balanced rate environment as the sector transitions away from market-driven revenues and back to our fundamental base growth.

Now I'll turn the call over to Pablo to discuss Banco de Chile results for the quarter.

Thank you, Rodrigo. Let's turn to slide 9. Before discussing the financials, I would like to briefly review our business strategy and our core aspirations that guide Banco de Chile's actions. At the core of our strategy is our purpose, to contribute to the development of the country, its people and companies. Everything we do across our business, our culture and our digital transformation flows from that principle.

Our model is built around three strategic priorities, placing the customer at the center of our decisions, operating with efficiency and productivity and maintaining a strong commitment to sustainability and to Chile.

Together, these pillars support our long-term ambition and delivering sustainable and profitable growth supported by strong governance, disciplined risk management and the collaborative culture. In line with these aspirations, we have defined clear midterm targets, as shown on the right. That reflects both our competitive position and the standards that we set ourselves.

We aim to remain top one in return on average capital among our relevant peers, and maintain a cost-to-income ratio below 40%, which we have revised down from 42% based on the solid improvements we have achieved in the recent years. We also seek to strengthen our market leadership by leading market shares and demand deposits in local currency, commercial loans and consumer loans.

From a customer standpoint, we are committed to delivering a Net Promoter Score of at least 73%. While on the reputational front, we aspire to rank among the top three institutions in Chile based on the Merco ranking. Together, these goals anchor execution of our strategic plan and reinforce our long-term vision to be the best bank for our customers, the best place to work for our people and the best investment for our shareholders.

Let me now move to slide 10, which highlights some of the most relevant business advances we achieved during 2025. This year, we launched our new acquiring and processing subsidiary, Banchile Pagos which seeks to give us a stronger position in the payment ecosystem and allowing us to broaden our value proposition for companies ranging from SMEs to corporations.

As discussed in previous calls, this initiative reflects our strategy of deepening digital capabilities and strengthening fee-based income streams. We also continue to expand and enhance our FAN digital accounts, which have met a sustained demand for a fully digital on-boarding and transactional solutions from customers. Total FAN accounts reached 2.4 million in December 2025, representing a 25% year-on-year increase while balances per account rose by 32% over the last year.

In parallel, we stepped up cross-selling initiatives for credit cards and micro loans within the FAN base driving higher engagement and further deepening relationships in this fast-growing segment. Likewise, we continue to advance in our leadership ambitions in lending. Originations and consumer loans increased by 7.2% year-on-year, reflecting disciplined growth and improved origination capabilities across our distribution channels as we continue to benefit from increased originations through digital channels.

At the same time, our SME client base continued to expand with current accounts growing around 12% year-on-year reinforcing our role as a primary bank for a broader base of small- and medium-sized enterprises. Within this segment, non-government guaranteed installment loans for SMEs showed particularly strong momentum, growing 9.4% year-on-year, highlighting healthy underlying demand beyond support programs.

In addition, our investment in AI-based virtual assistance enhance both customer and employee experiences by speeding up response times, improving service availability and boosting internal productivity. These tools have become an increasingly important part of our digital transformation journey. We also made significant progress in improving productivity across the organization, supported by the steady expansion of digital channels, higher levels of automation and continued adoption of advanced technologies in their commercial and operational processes.

Additionally, we managed to deepen operational synergies with our subsidiaries by centralizing functions, standardizing processes and leveraging shared platforms to capture economies of scale and simplify our operating model. The successful integration of our collection subsidiary, SOCOFIN, represents a concrete example of this strategy and marks a major step towards a more centralized, efficient and simplified operating model without compromising service quality or collections performance.

We have also continued to strengthen talent and capability development across the organization. Throughout the year, we deepened our leadership in commercial training programs, broaden internal mobility opportunities to support career growth and reinforce a positive collaborative workplace climate. These efforts were complemented by competitive employee benefits and initiatives designed to retain and develop high-performing teams, ensuring that our people remain a core differentiator for Banco de Chile.

On the sustainability front, we placed US-denominated ESG bonds under our MTN program to finance social projects, reinforcing our commitment to sustainable development and further diversifying our funding sources. This transaction builds on our long-standing approach to responsible finance and our strategy to support community-focused initiatives.

And finally, in the second half of 2025, we presented the 4270 Project, a unique audio-visual initiative that documented Chile's 4,270 kilometers from North to South through a 90-day drone journey. Beyond this cultural value, the project reinforces our brand by linking Banco de Chile with national pride and long-term commitment to the country. Conceived as a gift to Chile and made more than 500 royalty-free images available for educational use and has received international recognition.

Turning to slide 12. Our results once again position us as the leader in the Chilean banking industry. We closed the quarter with a net income of CLP266 billion. And for the full year, we reached CLP1.2 trillion, maintaining our historical leadership and profitability. Our return on average capital stood at 21.9% in 2025, above most of our peers and consistent with our long-term track record on this matter, which coupled with an unparalleled capital position, the strongest among relevant peers.

In terms of market share, we attained a 22% industry net income comfortably ahead of all of our peers. This performance reflects the quality of our franchise, disciplined risk management and the resilience of our core business.

The chart on the bottom right shows the evolution of our return on average assets which continues to lead the system with a clear gap over peers. Even in the year marked by lower inflation, sudden yield curves, and softer loan demand, we maintained the superior result, thanks to solid funding, sound credit quality and efficient operating model.

Moving to slide 13. Our operating revenues remained resilient despite the normalization and inflation and the decline in noncustomer income. Total operating revenues reached CLP749 billion in the quarter, with customer income increasing 4.4% year-on-year, reflecting the continued strength of our core business.

Noncustomer income when compared to the fourth quarter of 2024, declined as expected, given the lower contribution from inflation index net asset position and net interest rate environment marked by flat yield curves yet overall revenue levels remained solid, well aligned with our forward-looking expectations.

For the full year, operating revenues totaled CLP3 trillion, remaining relatively stable when compared to 2024. This performance reflects the expected normalization in noncustomer income, mainly the lower contribution of our inflation index net position and decreased revenues from ALM.

On a positive note, the underlying strength of our core business continued to make a difference. In fact, customer income increased by 4.2% for the full year, driven by solid retail loan related revenues, that benefited from improved lending spreads and higher fee generation across transactional services and mutual fund management.

These dynamics underscore the resilience of our banking activities and the diversification of our revenue base. Even in the year marked by softer inflation and interest rate environment was marked by both lower short-term interest rates due to the ease in monetary process and a slight term spreads as yield curves remained flat for most of the year.

On the right side of the slide, you can see how our margins continue to differentiate us. Our NIM remains the strongest among our peers, supported by our leadership in demand deposits, and the diversified loan mix that continues to provide a structural advantage. A similar pattern is evident in our fees margin where both the strength of our product offering and solid customer engagement allows us to maintain a stable and attractive contribution to operating income.

Finally, our operating margin continues to position us ahead of peers. Even though market conditions have normalized, our focus on efficiency, digital adoption, process optimization has allowed us to protect profitability and maintain a clear gap relative to the system. Together, these drivers underscore the strength of our strategy and our consistent ability to convert commercial activity into superior financial performance.

Please turn to slide 14. Total loans rose 0.8% year-on-year, reaching CLP39.2 trillion as of December 2025. This evolution reflects very different dynamics across mortgage, consumer and commercial portfolios. First, Residential Mortgage loans were the main source of our loan book expansion by growing 5.3% during the period. This growth was supported by higher inflation, lower interest rates, a stable housing market and recent public programs aimed at reactivating this industry.

Second, Consumer Loans increased 3.9% year-on-year in line with the improvement seen in household consumption indicators during the year and the gradual recovery in demand reported in the -- by the Central Bank in the fourth quarter, 2025 credit survey.

Third, in contrast to individual loans, Commercial Loans fell 3%, consistent with the slower recovery in private investment and the more conservative behavior of large corporates. This decline was further amplified by loan prepayments, a pattern observed across the banking industry among corporate customers.

In terms of the composition of our loan book and our main growth drivers, Retail Banking is the most relevant in both cases, representing 67.5% of total loans, growing 4.2% year-on-year. Within Retail, individuals grew 4.4% year-on-year primarily driven by mortgage lending and the gradual pickup in installment loans during the second half of 2025.

Meanwhile, SME expanded 3.3% during the same period, although an important note that excluding amortization of FOGAPE loans, SME loans grew 9.4% year-on-year, up from the 8% growth rate posted in the third quarter, reflecting a healthy and accelerating lending activity in this market, which is coupled with our continuous support for entrepreneurship.

In Wholesale Banking, performance remains subdued. Total loans from this segment dropped 5.5% year-on-year with corporate banking leading the drop with 8.8%, while large companies posted a slight decrease of 0.5%. This decline was mainly due to the maturity of low spread trade finance operations, lower credit demand from corporations, prepayment and appreciation of the Chilean peso, which reduced foreign currency exposures when converted to CLP. At the same time, sectors such as real estate and construction are showing initial signs of improvement according to the Central Bank's credit surveys, although activity remains weak.

In summary, our loan book is well balanced and ready to benefit from a more positive macroeconomic outlook. The economy is showing firmer domestic demand. The labor market is stabilizing. Inflation is heading back towards target and interest rates are expected to continue normalizing throughout 2026.

In addition, surveys already reflect early improvements in credit demand from households, SMEs and sectors such as real estate and construction, coupled with increasing consumer confidence levels. With these positive conditions emerging, Banco de Chile is in a strong position to capture new opportunities and continue delivering industry-leading results.

Turning to slide 15. Our funding structure continues to be one of the strongest competitive advantages. As you can see on the left, demand deposits represent 26.8% of our total liabilities giving us a highly efficient funding base that remains structurally superior to the rest of the industry. This mix is further strengthened by time deposits and savings accounts, long-term debt issued and equity, supporting both solid liquidity position and cost efficiency. Looking at the chart on the top right, our demand deposit to loan ratio stands at 37%.

Once again, the highest among major peers. This leadership is not only a source of lower funding costs, but also a reflection of our strong franchise, customer engagement and the trust we've built across all of our business segments. More importantly, our demand deposit base is primarily composed of retail depositors, which provide us with enough funding stability in the medium term.

At the bottom of this slide, you can see the evolution of our inflation index position in the banking book. As explained in our financial management review report, our net asset exposure to the US reached CLP8.8 trillion in December 2025, increasing relative to the third quarter, mainly due to the growth in US assets and the amortization of the previously issued denominated -- US-denominated bonds.

This position is composed of both our structural inflation index gap, which serves as a long-term hedge for our shareholders' equity against inflation and temporary directional positions managed by our treasury depending on short-term market expectations.

Based on revenues obtained from inflation variations over the last quarters, we believe our strategy has more than offset the risks involved. Nevertheless, we continue to closely assess the expected inflation path and fed rate to adjust the exposures if needed. Altogether, the strength of our funding base, combined with the disciplined and effective balance sheet management allows us to sustain one of the lowest financing cost structures in the banking industry.

Please turn to slide 16 to review our capital position. As shown on the slide, Banco de Chile continues to maintain one of the strongest capital bases in the Chilean banking system, consistently operating at comfortable levels that are also well above peers.

In December 2025, our CET1 ratio reached 14.5%, and our total capital ratio stood at 18.3% both reflecting a robust capital generation capacity and disciplined balance sheet management. These levels place us comfortably above the fully loaded Basel III requirements applicable in Chile. We achieved this solid position after multiple years of sustained profitability and prudent but attractive dividends, which allowed us to preserve capital even in 2025, a year marked by lower inflation and more normalized revenues. Moreover, moderate loan growth in 2025 contributed to the expansion of capital.

Finally, an important regulatory update occurred earlier this month on January 16, 2026, the CMS removed the Pillar 2 charge of 0.13% previously assigned to us, bringing this requirement down to zero. This decision reflects the regulators positive assessment of our risk profile, governance and capital management practices.

In summary, our strong CET1 and total capital ratios position us exceptionally well to continue growing profitably, maintaining our leadership in the industry and navigate the next stages of the economic cycle with confidence to grow our portfolio.

Please turn to slide 17 to review our asset quality. Our loan portfolio once again reflects the consistency of our risk culture. In the fourth quarter, expected credit losses were CLP116 billion, bringing the full year figure to CLP382 billion, which is 2.5% below the level we posted last year. In terms of cost of risk, this indicator improved to 0.97% slightly below 2024, underscoring the resilience of our loan portfolio and the effectiveness of our risk management practices.

Breaking down the quarterly changes. The increase in provisions reflects both the normalization of asset quality indicators and a loan mix effect, given the stronger momentum in retail lending during the period. In the Retail banking segment, expected credit losses rose CLP15 billion year-on-year, largely due to the low levels of 30- to 89-day past due loans recorded in the fourth quarter of 2024, which created a low comparison base.

This was intensified by a pickup in lending activity during the quarter as reflected by consumer loans that increased 2% and credit card balances that grew 7.7% versus the third quarter. By contrast, the Wholesale Banking segment recorded a CLP6 billion reduction in provisions compared with last year, also driven by a comparison base effect, but in the opposite direction.

Specifically, the fourth quarter of 2024 included downgrades in certain real estate, construction and transportation clients, while the reclassifications in 2025 were more moderate. For the full year, credit loss expenses decreased CLP9.8 billion year-on-year. This was mainly driven by the Wholesale Banking segment where better credit profiles in the real estate and construction sectors together with the reduction in exposures to specific manufacturing clients contributed to lower credit losses.

The Retail segment also recorded a modest year-on-year reduction, these positive trends were partially offset by a CLP19.6 billion loan volume and mix effect, entirely concentrated in the Retail Banking segment as well as CLP3.4 billion increase in impairment on financial assets.

In terms of delinquencies, the chart on the upper right shows that the entire industry's NPLs remain above pre-pandemic levels. Nevertheless, we continue to have a lower past-due loan ratio of 1.7%, maintaining a sizable gap versus our peers and the industry, due to a sound origination standards and monitoring practices.

Looking forward, as economic activity improves, inflation moderates, we expect delinquency indicators to gradually converge towards our historical ranges. Nevertheless, as shown on the bottom left, our coverage remains one of the highest in the industry. As of December, total provisions reached CLP1.5 trillion, including both specific allowances and additional provisions resulting in a coverage ratio of 223%.

This robust buffer provides meaningful protection against potential stress scenarios and once again, differentiates our credit risk position from peers. In summary, despite the credit cycle that remains above long-term averages for the system, our asset quality metrics, strong provisioning levels and disciplined risk management practices continue to position Banco de Chile with one of the most resilient profiles in the industry.

Please turn to slide 18. Our structural cost discipline is supporting important efficiency gains, as you can see on this slide. Total operating expenses reached CLP293 billion in the fourth quarter of '25 down from 3.5% and 6.7% in nominal and real terms, respectively, year-on-year. The decline, as shown on the chart on the top right was led by personnel expenses decreasing 7% year-on-year in nominal terms in the fourth quarter of 2025, mainly due to lower severance payments versus the 4Q '24 and slightly higher growth in salaries as headcount decreased 4% year-on-year as a result of the adoption of our sales and service model.

Depreciation, amortization and other expenses dropped 12% year-on-year. This was partially offset by administration expenses that rose 5.1% year-on-year, mainly from marketing and technology-related expenses.

For the full year, operating expenses were essentially flat at CLP1.1 trillion, and in real terms, decreased 3.5% year-on-year. Specifically, personnel expenses fell 2.1% year-on-year, more than offsetting a 3.1% year-on-year increase in administrative expenses which remained below inflation while depreciation, amortization and other expenses also trended lower in 2025 versus the prior year.

These positive trends in our cost base reflect a solid cost control culture we have developed over the last five years. The benefits we have obtained from successful optimization programs, including improved service and operating models, which have leveraged on targeted IT capital expenditures that are bearing fruit in terms of increased efficiency and productivity.

As a result, our efficiency measured as total operating expenses to income reached 37.4% for 2025, comparing well to our history, peers and the industry. Looking ahead, our focus is unchanged. Maintain strict cost control while investing in capabilities that matter, digital, data and distribution so we can continue to post excellent productivity and efficiency levels. For 2026, our baseline guidance forecast efficiency around 39% under normalized revenue conditions.

Please turn to slide 19. Before taking your questions, I'd like to highlight a few key points from this presentation. Chile continues to demonstrate solid and resilient macroeconomic fundamentals, supported by credible institutions, a sound financial system and a stable policy framework. Despite a complex global environment, Chile remains well positioned relative to its peers and continues to offer a favorable environment for long-term investment.

For 2026, we expect above-trend GDP growth of around 2.4% driven by stronger contribution from domestic demand, particularly investment, machinery equipment. Inflation and interest rates are also expected to converge to the long-term levels at 3% and 4.25%, respectively.

Turning to Banco de Chile. I would like to reinforce our ability to combine strong earnings with robust capital levels. As shown on the left, we delivered $1.2 trillion in net income with a CET1 ratio of 14.5% and a return on average assets of 2.2%.

Finally, regarding our full year 2026 guidance, we expect return on average capital in the range of 19% to 21%, efficiency around 39% and cost of risk between 1.1% and 1.2%. We remain confident in our ability to continue positioning Banco de Chile as the most profitable investment in the Chilean banking industry over the long term, supported by a solid strategy, the best customer base, superior asset quality, a sound risk culture and the strongest capital position among peers that will enable us to take advantage of a more dynamic lending environment as the Chilean economy gains momentum.

Thank you. And if you have any questions, we'd be happy to answer them.

(Operator Instructions)

Ernesto Gabilondo, Bank of America.

My first question will be on the economic and political outlook. Just wondering what have you been hearing in terms of reducing the statutory tax rate and reducing the credit card limit on credit cards? I have seen other banks with a more cautious view on the timing of the approval of both topics. So I just want to hear your view.

My second question is on your loan growth expectations. I wonder if you can break down your loan growth expectations per segment? And my last question is on your capital allocation. So shareholders approved a dividend payout ratio of 85%. But Banco de Chile continues to have a very high common equity tier 1 ratio. So just wondering how you're seeing your capital allocation in the next years? And if you're expecting to take advantage of your strong balance sheet to take market share in the second half or next years?

Ernesto, thank you very much for the question. Its Rodrigo Aravena. In terms of the economic and the political outlook that we have. I think that there are a couple of things that's important to highlight here. First of all, we have for this year an official outlook for the economy for the GDP of 2.4%.

However, we are aware about the potential asset risk in this estimate because we have seen very positive signs from the domestic demand. And also in terms of the business confidence, the consumer confidence, for example, we have seen a very positive trend. In fact, today, we have, for example, the highest consumer confidence, the expectation for the next 12 months from the household is the highest since 2018.

Additionally, we have very good signals from the capital imports anticipated a good trend for investments. So having said that, I think that it's very important to mention that even though we will likely have a similar economic growth this year compared to the number that we have in 2025 and 2024. I think that the good news is the composition of growth because the main driver of activity this year will come from large domestic demand.

In terms of the political agenda, political outlook, the new government will take office, March 11. Only at that time, we will know the main priorities, the main agenda. However, there is an important consensus in Chile, which is part of the agenda of the new government as well in terms of for example, to propose a reform by reducing the corporate tax rate from the current 27% to -- we have to wait for the announcement of the government, but the consensus that the rate could fall towards, I don't know, 23% something like that.

It could be a positive news in terms of the investment, in terms of the economic growth in the future. But again, we have to see what will be their priority for the new government, and we will have information on that only after March 11.

But overall, today, we have a more positive view on the economy, especially from the domestic demand. But we have to take into consideration as well that the recent strengthening of the Chilean peso would review the inflationary pressures this year, which could have a potential impact in terms of interest rates. So we -- still we have some mixed trends that we have to pay special attention to. Pablo?

Okay. In terms of the interest rate caps and discussions, it's still very early, but obviously, similar to what happened in the past, the reduction leaves vulnerable or the mass market consumer markets unbanked and is precisely what occurred after those regulations that were implemented. This obviously could help return to the segment for the financial institutions. So this would be a positive move, but it's very early in the discussions to see if this will actually come through.

In terms of loan growth by segment, what we're seeing for next year in the industry is loan growth growing around the 4.5% level for the industry. So we think that one of the most relevant areas that we should see a return to growth is in the Corporate Banking.

So in Corporate Banking, which has been very weak over the last year, we believe that this -- we should start to see an improvement. And in terms of us what we're looking at growing is slightly -- well, above those levels, focusing in our key segments. We're seeing somewhere around the 7% nominal level of growth.

Obviously, it will depend on the evolution of changes or improvements in terms of politics. We're seeing a recovery also in Consumer loans, which is very important for us, somewhere in the levels of around 6%. These numbers are nominal. Mortgage loans around the 5%, and Commercial Loans, we should see a pickup that's more around the 8%, which is the area that has had the highest difficulties over the last five years, where we've seen an important decrease with a special focus in those smaller and medium-sized businesses, SMEs.

The third question was the capital. So I'll pass the call Daniel Galarce.

This is Daniel. Ernesto, as we have mentioned in the past, we have favorable gaps in terms of capital risk today, of course. And basically, we want to use them in the future as long as the economy gains some momentum. As we mentioned in our quarterly report also, we want to save and we take some market share in the future, particularly in 2026. So we want to grow above the industry in terms of loans.

In the long run, and also, as we have mentioned in previous calls, we believe that we should cover, we should flow in capital ratios at least 1% above the regulatory limits. That means that probably we can float even over that margin over than 1% or something like that. But in the long run, important thing is that we want to use the capital in order to take more growth and faster growth than the rest of things.

Andres Soto, Santander.

I have a couple of questions. The first one is regarding your loan growth expectations. I would like to understand two aspects. The first one is, how do you expect this loan growth to happen. Is it going to be more tilted to the second half of the year?

Or you are going to see this pickup from the beginning? This considering that at the end of 2025, we actually saw a deceleration of growth for all the Chilean banks, but particularly for Banco de Chile. That will be my first question.

Yes. So for loan growth expectations, it should probably be more in the second half of the year, in line with activity and changes that can occur. You have to remember that in Chile, the government takes office on March 11.

So all changes and benefits that could occur in the short term, would change after that date as well. So what we've seen in the last quarter of this year was low demand from customers from corporate customers some loan repayments from larger corporate customers and foreign trade loans that were -- that came due -- the retaken.

So the fourth quarter was a little bit weaker in the commercial loans, so we should expect that in the second half of the year, we should start to see a larger pickup in terms of loans and in the medium term, we should see the possible benefits more in coming years because our expectations for the industry, remember is 4.5% nominal growth, which is under 1 times the loan elasticity of Chile because we're expecting Chile to grow around 2.5% plus inflation of 3%, we're below the 1 times.

Understood. And so thinking about 2027, can we assume that you -- there will be additional acceleration in lending based on this regulatory agenda that is being proposed by the new government? Or how do you see the medium-term expectations in terms of Chile GDP and lending activity?

If we look in the past, Chile always grew 2 times. Probably that's more challenging to achieve by the medium-term goal or level of reasonable is around 1.4 times, 1.5 times, and they should be times there's higher levels of growth for a shorter period of time. So in 2027 and beyond, we should see better growth in the industry, taking back that level of growth that was lost during the last four years, especially in commercial loans and consumer loans.

Yes. Hi Andres, I think that it's also important to keep in mind that -- it's going to depend on the type of measure that the new government will announce. For example, there is an important consensus about the rules to reduce taxes, but the question is about the timeline of this potential reduction impacts. We have to remember that there is not an important majority in both (Cameras). So that's why -- there's going to be some indication between different parties, coalitions, et cetera.

So that's why I think that even though we are aware about the potential average buyer now we're forecast for both for domestic demand loan growth for the GDP. I think that it's very important to analyze the specific details of the proposal of the new government especially in terms of the timeline of the potential reduction in taxes, the main area where the government will try to reduce the bureaucracy for investment, et cetera. So I think that the detail of the new proposal and the reform will be very important in terms of the potential timing of recovery of loans.

Perfect. My second question is on your guidance. You said 39% efficiency ratio. And I would like to understand better what drives this view considering your loan growth expectations and your NIM, I get a lower margin -- a lower efficiency ratio. So I wanted to clarify what you're seeing in terms of fee income, expense growth to see this would be the reason why you assume this level of efficiency?

Well, our three-year project that was implemented, and we've seen significant improvements in terms of costs has been mostly implemented. We've seen improvements in efficiencies and productivities across the bank, a reduction in the branch network, optimizing the structure of Banco de Chile and that's permitted us over the last couple of years to have very low expense growth.

For 2026, we should think of more in line with inflation expense growth due to last year's inflation affecting basically all of our numbers on operating expenses as well as some slightly higher depreciation levels because of technology investments, et cetera.

In terms of operating income, as we mentioned, 4.5% NIM and fees, we should think, as we've said in other calls, our main driver is customers. So we should be having a good level of fee growth, thanks to a rise in customers, which is generally around the 7%, one-third is coming from FAN accounts of that number, cross-selling.

And particularly this year, we should have more growth related to transactional revenues as well as some of our subsidiaries and will begin to have income from Banchile Pagos, our acquiring business. So it's reasonable to think of a level of around high single digits, low double digits for fee growth.

So it should be similar to what we had in the prior year, but the composition of that number will be different because we expect more moderate growth in terms of AUM and mutual fund management, which we've had a very strong growth over the last few years.

Pablo, just to summarize, you are seeing expense growth in line with inflation and fee income above lending growth. Is that correct?

Expense growth in line, slightly above inflation and expense and fees similar to 2000 -- the prior year. We also take into consideration in operating expenses, we have in Banchile Pagos and in fees, we have Banchile Pagos as well and the rest is inflation

Lindsey Shema, Goldman Sachs.

First, maybe just a follow-up on Banchile Pagos. Do you have any initial updates on how operations have been going? And then how do you see the overall market and the opportunity set there? And how much it can contribute to earnings in the future?

And then my second question is just clarifying if the upside risks to local GDP growth are factored into your loan growth estimates and your overall estimates or if there's some upside risk there?

So for Banchile Pagos , it's been going very well. We started this, as you know, in the fourth quarter of 2025. Today, we have a level of around 4% of customers that are SMEs or equipment to the size of our SME book. We have about 4% of our Banchile Pagos customers. It's been growing well.

We have a customer base that we're focusing this target of about 160,000 SMEs. And if we look at the smaller like mid-cap companies, that number goes up to 200,000.

So we have an interesting level of customer base that we're cross-selling with our account managers, to Banchile Pagos. This number -- this new subsidiary will be adding important value to -- is one of the drivers for fee growth. It's also one of the drivers for a little bit more expensive, but it's coming out positive evolution of Banchile Pagos overall. So we're very happy with the level of growth that this product has had.

Okay. Thanks for the question. This is Rodrigo Aravena. As you mentioned, we have an up risk in terms of our GDP forecast, which is mainly based on five key drivers. First of all, we have a better cover price, which is important for the country. You know that the mining sector is important for us, represents nearly 15% of the GDP. So the improvement of the terms of trade is positive for us.

Second, we have seen an important improvement in consumer confidence. Third, a similar trend for the business confidence. Fourth, we have seen an important pickup in capital goods imports, which potentially anticipate a better dynamics on total investment. And also, there are positive expectations regarding the measures that can be taken and announced by the new government, especially in terms of the reduction of red tape, bureaucracy and also the potential room to reduce the corporate tax rate in the future.

Of course, that when we have a better environment for the GDP, it's reasonable to expect a greater dynamics in loans. However, we have to consider that there is a delay between the GDP cycle and the loan cycle. I mean what I'm trying to say is that when you have an acceleration activity in some quarter, not necessarily, we have a fast acceleration in loans in the same period of time.

So that's why I would say that we have an upward risk with GDP for the domestic demand this year that is not necessarily. We have the same asset risk for total loans this year. We can rule out that part of the recovery on loans will happen in the -- during the next year.

Daniel Mora Ardila, CrediCorp Capital.

I just have one question. You mentioned that you want to be the most profitable bank in Chile in terms of return of average capital. The new guidance of 19%, 21% since conservative, if we think about the ROE expectation of a key competitor. So I would like to understand if this will be the long-term return on average capital figure? Or do you expect -- and how do you expect to expand profitability?

Daniel, well, thank you for your question. I think it's important to consider if we look at different metrics and similar levels of capital, we have a very attractive level of returns. If we look at ROA, we're by far the leader. Today, we have -- it's true we have a CET1 ratio that's higher than our peers, and that generates a lower return on average capital. But our aspiration is to be number one. So in our guidance for this year is 19% to 21%. Maybe there's some things change within Chile. Those numbers can evolve, obviously.

But in the medium term, the idea is to use this capital and organic growth, inorganic growth and we need to use effectively our capital. So this should generate better returns for us, and we should begin to see a return and return on average capital similar to what we see in return on average assets which we should return to being leaders as we deploy this additional capital and growth or how we use this to become more sustainable.

Perfect. And do you have a long-term figure already incorporating the use of the excess capital that you currently have?

No, we don't have a long-term figure, but as Daniel Galarce has mentioned that it's reasonable to see banks should have a reasonable level of capital in order to grow and use during a normal course of business, which generally is in the levels of 1%, 1.5% above the regulatory limits.

Neha Agarwala, HSBC.

A quick one on the cost of risk and asset quality. How do you see that evolve going forward? Your cost of risk is slightly higher than what you had for 2025. It seems like it's mostly driven by the loan growth that you're expecting. But is there any other moving factors, if you could elaborate on that?

And when I look at your guidance and the growth assumptions, the ROA is 19% to 21%, it seems like we could have a bit of upside risk to that number. Any thoughts that you can share on that?

Hi, Neha. Thanks for the questions. In terms of cost of risk, it's true our number of 1.1% to 1.2% is higher than what we've had over the recorded what we -- over the past few years. And that goes in line with the levels that we think are more in line with our long-term levels of cost of risk, and asset quality. We should see a year that's more -- we should see more growth this year, especially a change in mix that is more focused on SMEs, more focused in consumer loans.

So the net position should be more profitability in terms of net interest margin cost of risk in the long term as this evolves to more normalized levels where we've been has been very low levels of cost of risk, which don't make sense for the cycle that we're in. We're in the cycle of GDP that's growing around above 2%, but unemployment rate quite high for this level. And coming out of a very high level of inflation that affected household income, and that's affected payment behavior.

So we think it's reasonable to consider a cost of risk, which should move slowly return to the levels of our long term of 1.1% to 1.2%, but obviously, there's positive scenarios in that number if the economy improves better than expected unemployment comes down, real wage has increased more. That number could be better. So you can argue both ways.

In terms of ROE, its similar to that, what's driving these numbers of ROE of 19% to 21% and part of this is cost of risk and part of this is operating expenses. So as improvements if there's surprises in the year, there can be a positive effect on the bottom line as well. And you can also have the negative effect if the surprises in the year of lower inflation, more unemployment, you can have the opposite. But considering everything that economists are looking at. We think it's reasonable the levels of cost of risk today that we should have and the levels of return on average capital.

Thank you. We would like to thank everyone for the participation today. I will now hand it to the Banco de Chile team for the concluding remarks.

Thanks for taking the time to listen to our call and we look forward to speaking with you in the next quarter's results. Bye.

We'll now be closing all the line. Thank you, and have a nice day.

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