Banco De Chile ADS

Good afternoon and welcome to Banco de Chile first quarter 2026 results conference call. If you need a copy of the financial management 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 Calarse, Head of Financial Control and Capital Management. Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company financial and operating performance. All projections are subject to risk 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, everyone. Thank you for joining this quarterly conference call, where we discuss the overall performance of the bank, as well as the main trends observed in the business environment. We have completed another positive quarter, performing well in several key SLA areas, such as profitability, demand deposit, market share, and asset quality, while maintaining the largest coverage ratio among peers and the soundest capital adequacy among relevant peers. We also achieve important milestones in non-financial areas, such as the increased adoption of digital and AI tools, productivity and ESG, which we will discuss in more detail through this presentation. As usual, I'd like to begin with an analysis of the economic environment. Please turn to slide number 3. The beginning of this year has undoubtedly been marked by a significant shift in global conditions, driven by the escalation of the geopolitical conflict in the Middle East. Tensions in global energy markets have led to a significant external supply shock, with important consequences across the global economy, particularly in terms of inflation. As we mentioned in previous conference calls, Chile is a small and open economy and, therefore, vulnerable to thermal shocks. As shown in the chart on the left, the CPI clearly reflects how these global trends affect our economy, increasing by 1% in March, mainly due to the higher fuel prices during the month. As a result, inflation during the first quarter reached 1.4% year-to-date. Also, CDI excluding volatile items increased by 0.5% in March, reflecting the absence of relevant pressures at the core level, at least for now. We expect these pressures to intensify in the short term, as can also be seen in the charts. CDI has likely increased to around 1.6% for the month of April, driven by further increases in fuel prices in recent weeks in the presence of some second-round effects, mainly related to indexed prices. This would significantly rise inflation in the first half of the year. These developments have contributed to significant adjustments in inflation expectations, as shown in the chart on the top right, Breaking inflation rates implied in swaps have increased by more than 100 basis points, moving above 4% for this year. In fact, a few weeks after the beginning of the war, expectations rose even further, reaching almost 5%. This shift in market implied expectations is also consistent with the result of the economic expectations survey, which now anticipates inflation of 4.3% this year. For longer horizon, expectations remain anchored at the 3% target. In this environment, the Chilean central bank has adopted a more cautious monetary policy stance. In March, the board not only decided to keep the policy rate unchanged at 0.5%, but also removed its previous easing bias. Specifically, they pointed out that the war in the Middle East has evolved more negatively than in the Basin scenario, which increases the probability of more adverse impacts on global activity and inflation. Accordingly, it will closely monitor the factors that could increase the pass-through and the persistence of inflation on local prices. Thus, board members... Note that future policy decisions will be assessed at each meeting, leaving open the possibility of a rate increase if needed. According to the forward guidance in the Monetary Policy Report, convergence toward neutral levels around 4.25% will likely be postponed until next year. I would now like to turn to recent development in economic activity. Please go to slide number 4. The Canadian economy expanded by 2.5% in 2025. This strongest-than-expected performance was largely driven by more dynamic domestic demand shown in the top-left chart. Specifically, at the chart on the bottom-left display, there's been a clear shift in the composition of growth, with consumption investment making a larger contribution to overall GDP growth. In 2025, Gross investment grew by 7% after contracting by 1.6% in 2024, despite overall GDP growth remaining broadly similar in both years. Consumption also improved, with growth accelerating from 1.4% to 2.8% over the same period. Investment momentum strengthened in the fourth quarter as gross investment expanded by 9.7% year-on-year, supported by a strong 22.9% increase in machinery and equipment investment. Nevertheless, monthly GDP growth has slowed at the beginning of this year. This can be explained by weaker performance in sectors such as mining, as well as a normalization in commerce, partly reflecting a high comparison base from a year earlier. However, several lean indicators point to growth ahead. A turn in the top right chart, the main confidence figures have shown an upward trend in the last few quarters. Third, these factors support a favorable outlook for economic activity in the coming quarters. Turning to the labor market, the unemployment rate has remained between 8% and 9%. In the first quarter, unemployment increased to 8% to 9% from 8.7% a year earlier, while unemployment remains elevated compared with previous cycles, with stronger investment growth and improved performance in labor-intensive sectors, such as construction, to gradually translate into lower unemployment going forward. I would now like to share our baseline scenario for 2026, in terms of slide number 5. In terms of activity, we expect GDP to grow in line with its potential. Our forecast of 2.1% for 2026 implies a slight slowdown compared with last year, reflecting both weaker global growth expectations and a less expansionary fiscal stand announced by the government. Nevertheless, we continue to expect investment to grow faster than GDP, partially offsetting a weaker contribution from net exports. Compared with our previous conference call, we have revised our inflation forecast upward to 4.3% from 3%. This revision mainly reflects higher oil prices, which are expected to put inflation significantly higher in the first half of the year. Our baseline scenario assumes a gradual normalization in international oil prices during the second half, together with contained second-round effects, largely limited to indexed prices, while inflation expectations remain anchored and labor cost pressures stay moderate. Under this scenario, we expect the central bank to keep the policy rate and change at 4.5% through to 2026, postponing interest rate normalization until 2027. Finally, we are aware of the unusually high level of uncertainty in the global economy. Domestically, close attention should be paid to the ongoing congressional discussion around the government-proposed reforms, which aim, among other objectives, to provide additional support to economic activity. Key measures include a proposed gradual reduction in the corporate tax rate from the current 27% to 23% over a three-year period. greater tax certainty for future investment, lower municipal property taxes on housing, and improvements to the permitting and licensing framework. These discussions are expected to take time, and implementation is likely to be gradual. Before moving to the bank analysis, I'd like to review the main trends observed in the local banking industry. Please move to the next slide, number 6. As illustrated in the chart on the top left, the banking industry posted net income of $1.3 trillion and a return on average equity of 14.4% in the first quarter of this year. While this result represents a nominal decline of 6.9% compared to the same period last year, it continues to reflect the sector's capacity to generate solid profitability in a context of lower inflation. Turning to asset quality, the chart on the top right shows that non-performing loans remain relatively stable for the industry at 2.5%, with a coverage ratio of 142%, consisting with recent quarters. On the gray side, the bottom left chart shows that the loans-to-GDP ratio rose slightly on a sequential basis to 74% as of March 2026. but still below pre-pandemic levels, confirming the subdued pace of credit growth relative to economic activity in recent years. Consistent with this trend, the bottom right chart highlights the prolonged weakness in real loan growth. Since December 2019, total loans have declined by with consumer lending experiencing the sharpest contraction at 14.1%, followed by commercial loans at 99%, while mortgages stand out as the only segment posting real growth, increasing by 20.2% over the same period. Looking forward, we expect initially long growth of around 4.5% in nominal terms by year-end 2026, driven by a recovery in commercial lending, expanding around 4% and supported by improved business sentiment and investment under a more favorable market-friendly policy. Consumer mortgage loans are suspected to grow between 4.5% and 5% nominal, reflecting a moderate rebound in consumption and ongoing efforts to support the housing market. Considering higher expected inflation in 2026 and a pause. In monetary easing, we have revised our industry net interest margin outlook to a range of 3.6% to 3.8%, and PLs are projected at 2.3% and 2.4%, and credit loss expenses stable at 1.2% and 1.3%. Now, I will turn the call over to Pablo to discuss Banco de Chile's results for the quarter.

Thank you Rodrigo. Please turn to slide 8. This slide summarizes our strategy committed to excellence and proven by results. At the core, our strategy remains unchanged and well executed. Customer centricity, efficiency and productivity, and sustainability. These three pillars guide how we operate, how we allocate resources, and how we create value for our stakeholders. In the center of the slide, you can see how these pillars translate into six core priorities. These are not aspirational, they are being actively executed across the organization and the results speak for themselves. As you can see on the right hand side, we continue to deliver a solid track record of profitability, supported by high quality customer base, a well diversified operating income base characterized by the resilience of customer related income, leadership in local currency, demand deposits and capital, and a comprehensive digital offering across segments. At the same time, we carry on making structural progress in efficiency and productivity across our organization while maintaining top service quality, low levels of attrition, solid ESG foundation reflected in our strong ratings and corporate reputation results. Our mid-term targets, as shown on the bottom of the slide, continue to anchor our execution. We are targeting top positions in returns, DDA balances, and local currency, as well as commercial and consumer lending, a cost-to-income ratio below 40%, a net promoter score above 73%, and rank among the top three positions in corporate reputation. In summary, we have a strategy that is disciplined, consistent, and resilient, and importantly, one that is already reflected in our operating and financial performance. Please turn to slide 9, which provides a summary of our first quarter 2026 highlights. The list at the top of the slide shows our key financial metrics for the quarter, which we will walk through in detail in the next few slides. Total loans reached 40.2 trillion pesos, up 2.6% quarter over quarter. Operating revenues came in at 749 billion pesos, with a net interest margin of 4.1%, despite lower than normal inflation for the period, and net income was 269 billion pesos, translating into a return on average equity of 18.2%. On the risk side, our cost of risk stood at 1.16%, with NPLs improving slightly to 1.6%, and our efficiency ratio was 38.4%. Our common equity Tier 1 ratio remained solid at 13.3%, even after paying dividends above the provisions amount. Some important advances I want to highlight this quarter are listed in the middle of this slide. On the commercial front, loan originations showed a positive trend. Consumer loan originations were up 16% year-over-year, while SME installment loan originations grew 18% over the same period. These trends were supported by our digital initiatives and improved origination capabilities across channels. In digital banking, for instance, we launched new tools for personal banking and SMEs while our fund account base grew 22% year-over-year in March 2026, and digital current account openings expanded by 35% in the same period, reinforcing our position in digital onboarding and financial inclusion while diversifying our customer base through the attraction of new customers. On AI adoption, we continued scaling capabilities through our Digital Skills Certification Academy and the application of advanced AI in specific use cases across the organization, which has allowed us to achieve productivity gains in several areas including marketing campaigns, service quality, fraud, compliance monitoring, and IT internal developments. These initiatives, together with a firm cost control discipline, delivered 0% real year-on-year cost growth, consistent with our long-standing commitment to efficiency. And on sustainability, we're proud to report that MSCI upgraded our ESG ratings from BBB to A, and we were included in the S&P Global 2026 Sustainability Yearbook. Finally, it's worth mentioning that our 2025 Annual Report was released in March aligned with international reporting standards. In terms of our guidance, we have made some adjustments to reflect updated inflation expectations and the last developments affecting the economic environment, given the information we have so far. Our guidance is based on our baseline scenario and does not incorporate potential impacts from additional geopolitical escalation or other non-recurring events. Saying that, nominal loan growth is still expected to reach 7%. As a result of higher inflation, we have also increased our net interest margin guidance by 10 basis points to around 4.6%. Cost of risk is expected to remain between 1.1% and 1.2%. In terms of our efficiency ratio, as measured as total operating expenses over total operating revenues, is expected to improve, reaching a level around 38% by December 2026. As a result, a return average capital and reserve guidance has increased to a range of 21.5% to 22.5%, excluding non-recurrent events. That said, it's important to acknowledge the risks surrounding this outlook. The escalation of the conflict in the Middle East remains the most significant source of uncertainty, together with domestic factors such as the still weak recovery in the labour market and the ongoing discussion of proposed reforms by the government. We will continue to monitor these developments closely and adjust our projections if necessary. Please turn to slide 10 to discuss the evolution of our loan portfolio. Total loans reached 40.2 trillion pesos as of March 2026, marking a 2.2% nominal increase year-over-year, while sequential growth reached 2.6% compared to December 2025, equivalent to an annualized pace above 10%. The recovery reflects the effort we are making to take back growth, particularly in commercial lending, where we regained market share. From a product perspective, the dynamics across our loan book remain differentiated. Consumer loans grew 5.1% year-on-year, supported by both installment loans and credit card lending as household consumption continues to recover. On the other hand, residential mortgage loans rose by 3.2% year-over-year, slightly below the industry's growth of 4.4% as of March 2026. Commercial loans, while only up 0.8% on an annual basis, grew 4.8% sequentially, a meaningful shift driven by the new corporate lending operations, particularly in public infrastructure and concessions, as well as continued momentum in SME lending once BOGAPA amortizations are set aside. Additionally, we expect that the recently announced proposal to reduce taxes could add more dynamism to the economy, especially in those sectors related to domestic demand, such as construction. In terms of composition, retail banking continues to be the main component of our loan book, representing 66.1% of total loans. Within this segment, it's worth highlighting the progress we've made in aligning our digital capabilities more closely with the business. The reorganization carried out two years ago merging our marketing division into our technology division, given the synergy stemming from the closely related functions in today's more digital world, is undoubtedly bearing fruit. Digital banking now serves as a central platform for customer acquisition cross-selling, and post-sale engagement. Our retail acquisition strategy addresses the full customer lifecycle through a segmented, data-driven approach using advanced analytics and targeted digital campaigns to drive conversion and onboarding. The results speak for themselves. Significantly stronger consumer and SME loan originations, both leveraging on these digital capabilities. On the cross-selling front, we are beginning to test the waters of our fan base, using pre-approved offers for microloans, credit cards, and digital checking accounts, delivered at low cost but with high conversion rates, primarily through our MeBanko app and targeted digital communications across social media platforms. Also, AI-driven behavior segmentation and risk models have increasingly allowed us to identify pre-approved customers. During 2025 alone, we granted more than 24,000 microloans and FAN credit cards through this approach. And in the first quarter of 2026, we continued to scale these initiatives, extending pre-approved offers across products. We are very proud that today one-third of our current account openings now originate from the FAN customer base. Meanwhile, our SME portfolio expanded by 3.6% year over year, driven by a strong rebound in installment commercial originations to the segment, up 17.7% annually. This trend highlights the healthy underlying demand and effectiveness of our strategy focused on supporting entrepreneurship. The wholesale banking segment was essentially flat year-on-year. but improved significantly on a sequential basis, expanding 9.4% quarter over quarter. This growth was driven by proactive commercial efforts that materialized in important operations related to infrastructure and concession projects, enabling us to recover market share in commercial loans. Turning to slide 11, we continue the benefits from a loyal customer base, a low-cost funding structure, and a strong capital position which remain among our main competitive advantages. Starting on the left, demand deposits are our most important source of funding, representing 27.2% of our total liabilities, giving us a highly efficient funding base that remains structurally superior to the rest of the industry. Savings accounts and time deposits account also for another 27.2% of our total liabilities, while debt issued represents 19.8%. This structure, together with our solid capital base, provides us with a well-diversified and cost-efficient financing structure. On the top right, our demand-deposit-to-loans ratio stands at 37.4%, once again the highest among peers. This not only reflects our lower cost of funding, which supports superior net interest margins, but more importantly reflects our strong brand customer engagement and the trust we've built across all of our business segments. Our retail business accounts for 56.6% of total DBA balances and grew 6.6% year-on-year, supported by the ongoing expansion of our customer base and improved value offerings for current account holders. Wholesale, on the other hand, remained relatively flat year-on-year. The strong composition of retail deposits provides us with a meaningful funding stability in liquidity metrics over the medium term, as retail tends to be less sensitive to market conditions and institutional or foreign currency balances, while being a more stable source from the liquidity perspective. As a result, our demand deposit market share in local currency reached 20.7% as of March 2026, as shown on the bottom left, reinforcing our leading position among private banks. Moving to the bottom right, our capital ratios remain the strongest among tiers. As of March 2026, our CET1 ratio stood at 13.3% and our total capital ratio at 17%, both comfortably above fully loaded Basel III requirements. Looking ahead, there is an upside to our capital ratios. The CMF recently announced it will reinforce the process of validating internal models for credit risk, an option that has always been available under the local Basel III framework, but has not yet been pursued by the Chilean banking industry. For a bank of our size, this process will be influenced gradually, benefiting our CET1 ratio in the medium term. Additionally, it's worth noting that on January 16, 2026, the CMF removed the Pillar 2 capital charge of 0.13% previously assigned to us, bringing this requirement down to zero, a decision that reflects the Regulator's positive assessment of our risk profile, governance, and capital management practices. In summary, the combination of our industry-leading funding base and robust capital position allows us to sustain one of the lowest funding cost structures in the banking industry while positioning us exceptionally well to continue growing profitably and navigating the current macroeconomic environment with confidence. Please turn to slide 12. Total operating revenues reached 749 billion pesos in the first quarter of 2026, flat compared to the fourth quarter of 2025 and down from 779 billion pesos in the first quarter of 2025. As shown in the chart to the left, revenues have declined since the first quarter of 2025, largely reflecting lower inflation-linked income as inflation has normalized from previously elevated levels. while being significantly below both expectations and normalized levels in the first quarter this year by reaching 0.3% for the whole quarter compared to the 1.2% recorded in the same period last year. On a year-on-year basis, this decline in operating revenues was partially offset by higher net interest income driven by the expansion of our loan portfolio, demand deposits, as well as stronger fee generation. In addition, other operating income increased by 22 billion pesos, mainly related to tax reimbursements from previous fiscal years. Our operating margin, as shown on the charts to the right, reached 6.1% on an annualized basis. fully in line with our pre-pandemic average for the 2015 to 2019 period. Hence, even in a lower inflation environment, the strength of our business model, our funding advantage, our lending spreads, and our fee generation capacity continues to deliver industry-leading margins. More importantly, our net operating margin, which incorporates cost of risk, reached 5.2%, Above our historical average and above our peers confirming that our profitability is not only resilient but also supported by sound asset quality. We will go into more detail of the composition of operating income, fee performance and risk dynamics in the following slides. Please turn to slide 13 where we will take a closer look at the composition of our net financial income and net interest margin. Total net financial income reached 542 billion pesos as shown on the chart on the top right. This was composed of 460 billion pesos in customer financial income and 82 billion pesos in non-customer income. On a year-on-year basis, customer financial income has remained essentially flat while non-customer income decreased 43.5%. On a sequential basis, throughout 2025 to 2026, customer and non-customer income followed different dynamics. Customer income was supported by loan growth and steadily improved lending spreads, together with the expansion of demand deposits balances, mainly in the retail segment, that enabled us to overcome a lower level of short-term interest rate. However, this was partially offset by a decline in non-customer incomes, primarily coming from lower inflation, which was more than offset the positive effect of lower interest rates on revenues coming from assets and liability management that benefited from repricing of short-term funding sources. Moreover, the interest rate volatility observed in March 2026 contributed to a decrease in revenues coming from management of fixed income and derivative positions that also contributed to the decrease in non-customer income. It's important to mention that as of March 2026, our U.S. gap in the banking book stood at 8.9 trillion pesos as of March 2026, as shown on the bottom left. In terms of net interest margin, this came in at 4.1% this quarter, down from 5% a year ago, primarily due to the previously mentioned effects of lower inflation and the moderate decline in the contribution of demand deposits and cost of funds in the context of lower interest rates. Despite these factors, our net interest margin has remained above 4%, which speaks to the resilience of our core business even in a low inflation and normalizing interest rate environment. This advantage is structural and reflects the strength of our funding base, our lending mix, and our ability to generate consistent spreads through market cycles. While the first quarter net interest margin of 4.1% reflects lower inflation linked income, our full year guidance of 4.6% is supported by higher expected inflation over the coming quarters. Please turn to slide 14 to review the performance of our net fee income this quarter. fees made another solid contribution to our results, growing 6.9% year-on-year, supported mainly by transactional services and mutual funds. The 9.2% increase in transactional service fees was mainly driven by two factors, higher income from demand deposit accounts, supported by a 5.4% year-on-year increase in debit card transactions, and the continued expansion of our current account base. In fact, Over the last 12 months, we grew current accounts by 7.2%, with an important number of these being opened online. As discussed earlier, digital cross-selling capabilities we have built allow us to deliver pre-approved product offers for credit cards, loans, digital checking accounts, investment and insurance products at marginal cost compared to new customer acquisition, making fee generation increasingly efficient. Mutual fund fees also remained an important contributor, posting a 6.7% year-on-year growth mainly supported by an 8.7% increase in assets under management. In an environment of lower short-term interest rates and higher volatility, our subsidiary continued to adapt its product offering to satisfy investor demand. Stock brokerage delivered A strong year-on-year growth is well driven by higher equity capital markets actively associated with a couple of important deals in the local market, while fee income from insurance brokerage benefited from increased cross-selling of life credit related products and a more selective growth in higher premium products. Overall, this quarter's fee performance highlights the resilience of our diversified revenue base and our ability to deepen customer monetization by leveraging technology. When compared to the peers, this is evident in our fee margin over average interest rate in assets, where we continue to post strong levels as shown on the right of this slide with a ratio of 1.4%. Supporting this, a net promoter score ratio of 78%, which is the highest in the industry, which translates directly into deeper product penetration and stronger cross-selling across our customer base. Please turn to slide 15 where we will review our credit loss expenses for the quarter. Expected credit loss expenses reached 114 billion pesos in the first quarter of 2026, up 26.6% year-on-year as shown on the left hand chart. In terms of cost of risk ratio for the period, it stood at 1.16%, 23 basis points above the 0.93% recorded a year earlier, but in line with our full year guidance of 1.1 to 1.2%. On a sequential basis, however, cost of risk remained relatively flat. It's important to highlight some key movements that led to this annual rise. The first quarter of 2025 presented a period of lower than normal risk expenses, particularly in the retail banking segment, which created a low comparison base that largely explains the increase. In the wholesale banking segment, asset quality improved, with credit loss expenses declining by approximately 2 billion pesos year-on-year, driven by strengthened risk profiles in the real estate, construction and transportation industries when compared to a year earlier. On the top right, you can see how our delinquency ratio compares to peers. Our NPL ratio improved 1.6% in March 2026, down from 1.7% in December 2025, maintaining a sizable gap versus our main competition. On the bottom right, the improvement in asset quality is based across all segments. Commercial loan NPLs stood at 1.6%, mortgages at 1.5%, and consumer loans at 1.9%, all showing sequential improvements. This improvement reflects our prudent risk policies and the quality of our customer base, supported by disciplined loan growth across cycles and a more supportive macroeconomic environment. Please turn to slide 16. For this quarter, expenses totaled 288 billion pesos remaining flat in real terms year-on-year reflected continued cost discipline and consistent execution of our productivity and efficiency agenda. This is the result of a multi-year transformation effort that combines structural cost control with targeted technological investments, organizational simplification and ongoing optimization of our branch network and headcount. To put this into perspective, since 2018 we have reduced our branch network by 45% and our headcount by 19% while continuously improving service quality. As a result, Productivity continued to improve, with loans per employees reaching 3.6 billion pesos, up 3% year-on-year, and fees-to-expenses ratio expanding by 251 basis points to 58.2%. These gains were mainly driven by continuous innovation in digital capabilities and organizational initiatives, including virtual servicing models, which now cover around 20% of the retail clients, digital enhancement that supported 16% year-on-year increase in consumer loan origination, and at the same time, disciplined cost execution led to a 0.4% annual decline in personnel expenses and a 4% annual reduction in the branch network from 224 to 215 locations. Breaking this down, during the first quarter, expenses increased 2.5% year-on-year in nominal terms. This was mainly driven by an increase in administrative expenses associated with higher IT services costs, including cloud software licensing and IT support, in line with our digital strategy and higher marketing expenses related to the launch of new services at Bunchy, La Pagos. Personnel expenses declined slightly by 0.4% year-on-year, driven by a reduction in severance payments, partially offset by higher staff benefits reflecting the cumulative effect of inflation on salaries. The chart on the bottom right highlights our consistent efficiency track record, with levels well below pre-pandemic figures, reaching 38.4% in the first quarter of 2026, 763 basis points below the industry average of 46.1%. Looking ahead, we are confident that disciplined cost management, continued productivity gains and effective use of technology will allow us to sustain strong efficiency levels. Accordingly, under our revised baseline scenario, we expect to reach an efficiency ratio of around 38% in 2026 and remain below 40% over the medium term with our cost base fully aligned with our strategic priorities. Please turn to slide 17, which brings together everything we've discussed so far. Robust profitability driven by the resilience of our core business. Net income reached 269 billion pesos in the first quarter of 2026, slightly above the fourth quarter of 2025, despite lower inflation, reflecting the stability and the quality of our core business model. Our return metrics remain clearly differentiated, as you can see on the right hand side. Return on average assets stood at 2% and return on average equity at around 18% as of March 2026. While these levels are below the peak seen during the periods of higher inflation, they remain comfortably above the industry. This has been another quarter of solid results that has been supported by a strong asset and liability mix, solid fee generation, prudent risk management, and disciplined cost control, all of which continue to translate into industry-leading returns. Please turn to slide 18. Before taking your questions, I would like to highlight a few key takeaways from this presentation. On the macro front, Chile's economy continues to perform well, with GDP growth expected to come in slightly above its potential rate at around 2.1% in 2026, driven primarily from a recovery in private investment. Thus said, higher expected inflation in the near term will likely delay the pace of interest rate cuts. Despite global uncertainties, Chile's strong institutions and solid fundamentals, along with market-friendly reform proposals, should support a favorable environment for the economy and banking sector. On profitability, our core business continues to drive results. Net income reached 269 billion pesos this quarter with a return on average equity of 18%. a strong outcome in a low inflation environment and proof of the quality and consistency of our recurring income sources. On efficiency and productivity, expenses continue to be flat in real terms, demonstrating the tangible results of the efficiency and productivity initiatives that we have implemented over recent years. Our efficiency ratio will reach 38.4% this quarter, well below the industry, and remain competent in sustaining these levels going forward. And finally, OnCapital remains the best capitalized bank amongst our peers, which gives us flexibility to fund growth, maintain attractive dividends, navigate uncertainty from a position of strength. We remain confident in our ability to continue positioning Banco de Chile as the most profitable and resilient financial institution in the Chilean banking industry, supported by a disciplined and consistent strategy, the strongest customer base, superior asset quality, and a robust capital position that will allow us to capture opportunities as the economy gains momentum. Thank you, and if you have any questions, we'd be happy to answer them.

Thank you. So we will now move to the question and answer section. If you would like to ask a question, please press star 2 on your phone and wait to be prompted. If you are dialed in by the web, you can also ask a post question. We'll just wait a moment or two for the questions to come in. Okay. We have our first voice question from Diego Marquez from JP Morgan. Please go ahead. Your line is now open.

Hi, Rodrigo, Daniel, Pablo. Thank you for the space for questions. Just a quick one regarding higher inflation. So you slightly increased your ROE guidance but kept your loan guidance unchanged. So just wanted to see if we could see any further upside to the loan growth given higher inflation and making your 7% guidance and in which segments we could see the most upside. And then an additional question regarding potentially higher ROE than given inflation above this 21.5 to 22.5% that you guided. Thank you.

Hi, Diego. Thank you very much for the question. In terms of inflation, I think that it's very important to keep in mind that we are facing a supply shock, right? In a supply shock, you have a temporary rise in inflation. However, for the next quarter, it's likely to have a normalization. It's not that the situation in the rest of the world, the geopolitical conflict tends to be more normalized, right? so that's why we increase our cpa forecast for this year from three percent uh to four point three percent i mean uh what i'm trying to say is that we're gonna have a high inflation in the second quarter of the year uh probably uh a place from the top inflation in the second quarter will be This is 27, 28%. But for the next quarter, we are going to have a much lower inflation, achieving a total inflation a year of around 4.3%. For the next year, we can rule out an inflation rate of around 3%. and also we can rule out an inflation slightly below three percent because uh the supply shock tends to generate a more temporary impact of inflation so that's why uh our adjustment for the city focus of the year was only 150 business points even though the very important rights of the place for the second quarter of the year so probably we'll have the answer

So in terms of loan growth, in nominal terms, we're seeing similar levels as we mentioned in the first quarter. Sorry, the fourth quarter of last year in that call. But in terms of real growth, it's just slightly down because of everything that you know is happening in the global economy and how that's affecting all the countries. And Sheila, since it's an open economy, is also affected. So, in nominal terms, we're seeing a similar level of loan growth. In real terms, it's slightly below. This should be affecting overall the loan portfolio. But again, we're not seeing that change in the nominal figures. In terms of ROE, what we said in the guidance was around 21 to 22%. And that level of ROE is in line with this higher expectation of slightly higher inflation for the year end. Obviously, these numbers can change depending on how the the impacts of this um more difficult situation is is arising in in terms of the the global trends and how that affects our our bottom line so uh there can be changes based on on new news from these events

Thank you. So we'll now move to the next question that comes from Neha Agarwala from HSBC. Please go ahead. Your line is now open.

Hi. Thank you for taking my question. Could we zoom in a bit on your NIMS sensitivity? We understand you expect higher NIMS on the back of higher inflation, but could you reinforce what your sensitivity is both to inflation and rates? As there are some discussions about maybe potential rate hikes coming through. Also, do you have any calculations regarding what could be the potential improvement in the capital ratios for the changes that you mentioned and could that lead to maybe an extraordinary payout of dividends or increase in the dividends in the near term? Thank you so much.

Hi, Neha. This is Freddy Baradena. Thank you very much for this question. In our baseline scenario, we're not expecting changes in the interest rate from central banks because we're expecting only a temporary rise in the total inflation rate. in chile it's important to remember that in chile the monetary policy rule is based on inflation rate three percent over the next two years uh so given that uh we are expecting only a temporary impact of inflation and we maintain our forecast for the inflation rate of 3% over the next three years. And also, considering that the current inflation rate, sorry, interest rate, which is 4.5% is not expansionary, the central bank has room to continue waiting for the new developments in inflation, so there's room to continue maintaining the interest rate at the current level. Obviously, if the inflation rate were higher in the case that for example the oil price continued over in around 100 per barrel for example uh in that case uh we would have an interest rate hike in the in the future but so far it's not our our base nationality

And adding to that, in terms of changes of the overnight rate or interest rates, we don't have so many voting rates in the bank, so it's not an immediate impact, but in terms of what would move the quickest is their time deposits. which come due mostly within three months or so. In terms of the sensitivity to inflation, it's around 20 basis points of net interest margin. So we should see that. But more importantly, in terms of for the year, as Rodrigo mentioned, our baseline scenario is moving from a level of inflation of 3% to 4%. So it's a slight variation versus the prior year. So this is also included in our numbers where we increased the net interest margins from 4.5% to around 4.6%. And in terms of the capital ratio changes, I'll pass that to Daniel Galarza.

Thank you, Pablo. Hi, Mija. This is Daniel Galarza. Well, regarding your questions, certainly the use of internal models for banks with good asset qualities such as Banco de Chile would result in benefits in terms of capital for INF. However, there is still some way to go on this matter. I mean, we expect more specific guidelines by the CMF in terms of the application process, which is basically promised for 2027 by the CMF, and also probably clarification of certain technical issues and more flexibility in some topics would make the process also easier in the future. However, this is a topic we are working on and as we pursue to be one of the first in the queue for the application validation process. Although it's still too early to define the expected impact of the use of internal models on our capital ratios, we certainly expect to capture some benefit considering the regulation, but there is still a lot of pieces of information that need to be clarified.

Understood. Thank you so much. Thanks.

Thank you. Thank you very much. Before I move to the next question, just a quick reminder. If you'd like to ask a voice question and you're connected through the phone, please press star 2 on your phone keypad and wait for your name to be prompted. If you're connected via the web, you can also request to ask a voice question. Our next question comes from Daniel Mora from Credit Capital. Please go ahead, Daniel. Your line is open.

Hi, good morning and thank you for the presentation. I have just one question. Considering that you expect that inflation should be between 2.7, 2.8 in the second quarter, how high could be the impact on mean and also on ROE in that particular quarter? Thank you so much.

I think it's very important, as I mentioned, that in terms of an analysis by quarter, it's challenging to analyze since it's very volatile, the levels of inflation during the year. So as I mentioned, for net interest margins, the change is around 20 basis points. So with that, you have an effect of i don't know around uh 50 basis points higher in net interest margins and we haven't uh benefited in in the bottom line but it's more important that for the full year it's not so relevant uh for the full year we have a change uh versus 2025 of only one percent in terms of inflation so this is a quick spike up but it comes down very quickly to reach a level of inflation of four percent uh versus three percent um so that's the reason why we increased the level of roe uh for for the year end also because of the higher expectations of inflation uh not including any um other one-time events that could occur during the year sorry yeah uh described by the the

The estimate of 2.5 to 1.8% of inflation is an estimate of due expiration of the world rather than the CGI of that period. Yes, you are right.

Perfect. Thank you so much. Very good. And thank you for the clarification, Josh.

Thanks. You're welcome. Okay, thank you. So just the final reminder for any remaining questions, if you're connected via the phone, please press star 2 on your phone keypad and wait for your name to be prompted. Our web participants can also request to ask a voice question. I'll just give a moment or so for any additional questions to come in.

Okay.

It looks like we have no further questions, so I'll pass the line back to the team for their closing remarks.

Okay. Well, thanks for listening to our first quarter results. We look forward to speaking with you again regarding our second quarter results.

Bye. Thank you. This concludes the call for today. We are now closing all the lines. Thank you and goodbye.