Banco De Chile ADS

Good afternoon, everyone, and welcome to Banco de Chile's fourth quarter 2020 results conference call. If you need a copy of the press release issued yesterday, it is available on the company's website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Senior VP of Institutional Relations, Mr. Pablo Mejia, Head of Investor Relations, and Daniel Galarse, Head of Financial Control. 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.

Good afternoon. Thank you for joining this conference call today, where we present the financial earnings posted by Banco de Chile during the last quarter. We have divided this presentation into three parts. First, a discussion relative to the main economic trends and our forecast for this year. Then, we summarize the main achievements and key advances in our strategic pillars. The final section includes a review of our financial results read in the full quarter and, consequently, during the whole year. Let me start with a brief discussion of the Chilean economy. Please move to slide number three. As the IMF recently said, 2020 was a year like no other. The entire world was strongly affected by a pandemic that can be comparable only with the Spanish flu of 1918. In order to reduce the spread of the virus, several authorities implemented strong sanitary measures and mobility restrictions, leading to the worst recession at least in the last century. All in all, the global economy probably contracted more than 3% in the last year. Chile has a similar trend. as the economy was so suspected by the global recession and the negative impact of the pandemic. The GDP fell 6% in a year, led by substantial contraction in the second quarter. Nevertheless, the resilience of the Chilean economy positively compared with most of Latin American countries, as reflected by a robust recovery and better expectation for the future. On the whole, This recovery has been led by the joint contribution of three main factors, easing mobility restrictions, expansionary fiscal and monetary policies, and, to a lesser extent, the temporary impact of pension fund withdrawal on consumption. I will go over these factors later in this presentation. As can be seen in the chart on the top left, GDP posted a significant recovery during the second half of the year. In fact, the GDP posted annualized rate of 23% and 28% quarter-on-quarter in the third quarter and the fourth quarter respectively, after plummeting by 44% on a sequential basis in the second quarter. Due to this, the GDP has reduced its annual decline rate and it will probably retain positive rates over the next few months. The overall inflation a slight increase by the end of the year, in line with the greater dynamism of the chart on the other right shows. Specifically, the CPI went up by 1.2% in the fourth quarter from 0.3% in the previous one, lifting the year-on-year figure to 3% at the end of the year. Since the CPI is within the policy target, in an economy with an important output gap, The central bank seems to be comfortable with maintaining the overnight rate at 0.5%. In fact, the board has mentioned the intention of keeping the policy rate for a long period of time, as well as most of the liquidity measures announced since the beginning of the pandemic. The recovery has also been reflected in the labor market, although at a slower pace. The unemployment rate has fallen from the peak of 13% observed in July to 10% in December, as the bottom left chart shows. This improvement has been driven by the steady rise in total employment, as seen in the bottom right chart. The youth creation has been concentrated in sectors that benefit from the greater mobility, such as contraction and retail. On the other hand, services sectors remain subject since they've been much more affected during this pandemic. Based on these trends, there's been an improvement in the total economic expectations. In fact, according to different sources, including the consensus released by Bloomberg and Latin Focus, as well as the IMS based on the scenario, Chile should have the best average growth rate between 2020 and this year. I'd like now to focus on the main reasons that support this positive view. Please move to slide number four. Chile has been recognized for implementing several active and effective measures during this pandemic. In this slide, I'd like to highlight some of these policies. The country has also been successful in terms of reducing the spread of the virus after implementing strong lockdowns in mid-2020, the number of new enacted cases of COVID-19 has remained under control, leaving room to ease some mobility constraints relative to those that we had in the first wave of the pandemic. Consequently, as the chart on the other left shows, the share of positive tests has remained well below not only the threshold of 10%, but also from levels seen in other countries. Additionally, the government began a vaccination process with an increasing number of people being immunized, as the chart of the other right shows. According to government estimates, nearly 80% of the population will receive the vaccine during this semester. Philly has also made a difference in the economic area. On the monetary side, the central bank adopted several measures beyond the low interest rates. As the chart on the bottom left shows, the money supply has sharply risen as a result of bond purchasing, effects interventions, and the FCIC line, among others. The government has also played a key role, since the fiscal package is equivalent to nearly 10% of the GDP, being the only country able to maintain an expansionary fiscal policy in the region, according to the IMF estimates. Disposition shown in the chart on the bottom right is possible thanks to the strong fiscal position held before the pandemic. Therefore, we are confident that the recent green shoots will gradually translate into better dynamism in the next couple of years. Please move to the next slide where I will share with you our forecast as well as the main reasons supporting this positive view. We expect the economy to grow nearly 5.3% this year after falling 6% in 2020. These figures position Chile as one of the strongest and most resilient countries in the region at the chart on the right shows. The existence of better perspective for Chile is based on the following factors. First, the persistence of expansionary policies. The government announced that the fiscal spending will be maintained this year, with a special emphasis on infrastructure and public investment. This type of policy is particularly favorable for employment and consumption. A second factor is an improvement in the external scenario. The pick-up in the copper price, which represents more than half of our exports, is undoubtedly positive for the country. This trend is even better when we also consider the acceleration in China, a country that explains nearly one-third of total exports. Finally, as I mentioned before, Chile has begun a vaccination process which will allow greater mobility levels in the future. The table summarizes our main forecast. We see a recovery in all the components of the GDP, mainly in private consumption, which should be the main driver of growth. Additionally, we see an inflation rate stable at 3% over the next couple of years, leaving room to the central bank to maintain the interest rate at 3.5% for a longer period of time. Despite our expectations, we are aware of several risks for the future. Some of them include the global GDP growth, especially considering the high dependence of Chile to the international trade. The evolution of the pandemic is also a critical factor to monitor in the future. Also, the last, but not the least important, will be the political discussion in Chile. 2021 will be a key year for the future, since in only nine months, between April and November, there will be elections for a new president for most of the Congress and members of the body in charge to prepare the proposal for the new constitution. Now, I'd like to revise the main trends in the banking industry. Let's move to slide number six. Over the last 12 months, loans in the Chilean banking system have consistently slowed down in line with the weak economic growth by increasing only 2.4% year-on-year. As you can see in the chart on the top left, only mortgage loans remain relatively stable rising 8.1% year-on-year. As for the rest, commercial loan growth dropped to only 6% year-on-year, as for gap and loan demand pulled off by the end of the last year. The most intense drop was seen in consumer loans, which fell... Sorry for the interruption.

Just in case for the people that may be having trouble seeing the presentation, if you could just refresh the... the slide presentation, the page, and then we'll pop up again. Okay, thanks Pablo.