BCH

Good afternoon, welcome to Banco de Chile's second 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 Mejía, Head of Investor Relations, and Daniel Galarce, Head of Financial Control and Capital.

Before we begin, I would like to remind you that this call is being recorded, the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, 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 will discuss the overall performance of the bank, as well as the main trends observed in the business environment. We have completed an outstanding quarter, performing well in several key strategy areas such as profitability, demand deposit market share in local currency, and asset quality, while maintaining both the largest coverage ratio and the soundest capital adequacy among relevant peers.

We also achieve important milestones in non-financial areas, such as the increased adoption of digital tools, the materialization of new commercial alliances, productivity gains, and advances in ESG, which we'll discuss in more detail throughout this presentation. As in previous conference calls, before reviewing our performance during the quarter, I'd like to briefly discuss the macroeconomic environment we are facing. Please turn to slide number three. The Chilean economy has evidenced lower-than-expected dynamism.

As shown in the chart on the upper left, activity declined during the first five months of the year, leading to a weak expansion of 0.1% year-on-year in the second quarter after a 0.5% contraction in the first quarter. As a result, the GDP declined by 0.2% year-on-year in the first half.

That said, we expect this negative growth to be temporary and activity to rebound from the third quarter onwards. There are several reasons behind this assessment. The first is the composition of growth, since the contraction activity has been driven mainly by supply-side sectors, which tend to be more volatile and more exposed to temporary factors that reverse faster.

Mining, for instance, has been one of the main contributors to lower activity after contracting 3.1% and 5.2% year-on-year in the first and second quarters, respectively, reflecting how this sector has decoupled from the rest of the economy, as shown in the chart on the other right.

Other supply-side sectors, including fishing and manufacturing, have also paused decline, partly offset by sectors more closely linked to demand, such as retail and services, which grew 2.7% and 1.2% in the second quarter respectively. At the same time, we have also seen correction of macroeconomic imbalances.

This is particularly clear in the external accounts, where the evolution of domestic demand, together with positive terms of trade, with copper price reaching record levels and averaging $5.92 per pound in the first half of the year, allowed the trade balance to accumulate a surplus of CLP 30 billion over the last 12 months, contributing to narrow the current account deficit.

Despite the temporary slowdown in activity, leading investment indicators continue to contribute to a positive outlook. The chart on the lower right shows the outward trend in investment projects in the country, which, according to the Capital Goods Corporation registry, have continued to rise to their highest level in recent years, with a strong participation from mining, public works, and energy. These sectors should support both growth and employment, reinforcing our expectation of a recovery over the coming quarters.

Please move to slide four to review recent developments in prices and interest rates. After the increase in inflation between March and May, when the CPI accumulated an increase of 2.4%, the June figure showed a significant moderation with a new monthly variation.

As shown in the chart on the other left, this was mainly related to energy prices, which accumulated a rise of 15.9% over that period, following the increase in international oil prices. Even though there is no evidence of significant pass-through or second-round effect in core inflation so far, this dynamic has increased annual inflation higher from 2.4% in February to 4.3% in June, broadly in line with development observed in other countries.

Since the main source of short-term inflationary pressures is energy prices, which is a highly unpredictable variable given the uncertainty related to the geopolitical conflict in the Middle East. Inflation expectations in Chile, implied in financial asset prices, have been highly volatile over the last quarter. As the chart on the lower left shows, they have not only moved significantly in recent months but have also remained closely correlated with international oil prices.

In this context of high uncertainty, the central bank has maintained a cautious stance, keeping the monetary policy rate unchanged at 4.5%. The central bank board has not provided explicit guidance, this monetary decision was made despite less favorable employment data and weaker local activity figures, reflecting continued concerns about inflationary pressures, mainly from the supply side. Please move to the next slide to review our baseline scenario for the year.

We have revised our economic growth forecast downwards, as you can see on the last column of this table, from 2.1% in the previous quarter's conference call to 1.3%. This revision does not reflect a weaker outlook for activity going forward but instead the impact of subdued GDP growth in the first half of the year, mainly due to the performance of mining.

The new forecast is consistent with growth close to 2% in the second half of the year, with domestic demand making a larger contribution than net exports, which would help the economy to gain some momentum. For 2027, we believe GDP growth would approach 3%.

The recovery should be supported by the potential reversal of temporary factors that affected supply-side sectors such as mining, manufacturing, and fishing, as well as by a recovery in disposable income, as inflation is expected to decline in the second half of the year. A further factor that should gradually and sustainably support stronger dynamism in the country will be the implementation of the reconstruction bill.

Among the main measures approved by both chambers of Congress are the reduction in the corporate income tax rate from 27% to 23%, which would bring Chile closer to OECD tax rates. The implementation of tax viability regime for investment, reducing future tax uncertainty, and substantial improvements to the permits and licensing framework for investment projects, reducing bureaucracy and shortening the time for implementing new projects, which is particularly positive for long-term investments.

Recent shocks, including the expected higher intensity of El Niño and geopolitical conflict, remain a key source of uncertainty for the inflation outlook. Our 4% estimate for the year assumes a moderate decline in oil prices and no significant additional depreciation of the exchange rate. Under this scenario, we do not expect changes in the central bank policy rate, which currently stands at 4.5%.

The main risks to our scenario come from the external environment, particularly the evolution of the geopolitical conflict and its implications for both global GDP growth and inflation. Other factors should also be closely monitored, including growth in China, our main trade partner, which has slowed in recent months, as well as the evolution of tariffs. In Chile, the lagged response of the labor market remains one of the key variables to watch going forward.

Before moving to the bank analysis, I would 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 slide, the banking industry recorded net income of CLP 2 trillion in the second quarter and a return on average equity of 21%.

This performance continues to reflect the sector's capacity to generate solid profitability, supported by the positive impact of the temporary pickup in inflation on revenues. Turning to asset quality, non-performing loans for the industry remained stable at 2.5%, with a coverage ratio of 159%, including additional provisions, consistent with figures seen in recent quarters. On the credit side, the loans-to-GDP ratio continued at 74% as of June 2026, showing no signs of recovery.

In more detail, industry total loans reached CLP 255 trillion, growing 4.3% in nominal terms and 0.4% in real terms. Commercial loans continue to underperform, decreasing 1.1%, while consumer loans grew 1.7% and residential mortgage loans rose 2% in real terms. Looking forward, we have slightly modified our baseline scenario for the industry.

As GDP growth has been revised down and inflation is expected to be at 4%, we now expect industry loan growth to be around 4% in nominal terms by year-end 2026, from the 4.5% forecast last quarter. Also, we maintain the NIM guidance for the industry in the range of 3.6%-3.8%, while NPLs are projected to end the year between 2.3%-2.4%, and credit loss expenses are stable at 1.2%-1.3%. Now, I will turn the call over to Pablo to discuss Banco de Chile results for the quarter.

Thank you, Rodrigo. Please turn to slide eight. This slide summarizes our strategy that is committed to excellence and is proven by results. Our strategy rests on three pillars that we execute consistently: customer centricity, efficiency and productivity, and sustainability. These three pillars shape the way we work, the way we deploy resources, and the way that we generate value for our stakeholders.

In the center of the slide, you can see how these pillars translate into six core priorities, and on the right-hand side, we show how all these strengths come together to sustain our solid profitability track record. Our midterm targets are displayed at the bottom of this slide.

Our aspiration is to hold the leading positions in profitability in local currency DDA balances and in commercial and consumer lending, together with a cost of income ratio that's below 40%, a net promoter score that's above 73%, and a top three ranking in corporate reputation. To sum up, our strategy is disciplined, consistent, and resilient, and importantly, it is already noticeable in our operating and financial performance.

Please turn to slide nine, which summarizes our key financial and commercial highlights for the first half of 2026. The metrics at the top of the slide provide an overview of our performance, which we will discuss in greater detail over the rest of the presentation. Total loans reached CLP 40.3 trillion in June 2026, increasing 2.3% year-on-year.

Operating revenues totaled CLP 922 billion in the second quarter, increasing 20.9% year-on-year, supported by both a 5.8% net interest margin as a result of higher inflation and net fee income growing 10.7% year-on-year during the second quarter. On the risk side, our cost of risk, excluding additional provisions, stood at 1.15% with an NPL ratio that remains stable on a sequential basis at 1.6%, while our CET1 ratio remains solid at 13.9%.

Thanks to the strength of our operating margin and our firm cost discipline, our efficiency ratio reached 31.3% this quarter. All in all, this generated a bottom line for the second quarter of CLP 391 billion, equal to a return on average capital of 29.1% and a return of average equity of 27.9%. In the middle of this slide are the highlights of some of our commercial and operational advances achieved during the first half of 2026.

First of all, we would like to highlight that our commercial momentum remained at healthy levels. We originated 8% more consumer loans year-on-year and 18% more installment loans to SMEs compared to the first half of 2025, supported by our digital initiatives and strengthened commercial capabilities across channels. Customer acquisition was also positive as digital current accounts expanded 34% year-on-year.

Total current account openings increased 17%, and FAN Emprende openings rose 12% over the same period. On efficiency, our cost control and productivity initiatives, together with continued technology and digitalization efforts, kept real year-on-year expense growth below inflation, consistent with our longstanding commitment to operational efficiency.

We also continued expanding our value proposition through new business initiatives. We launched B Startup, a new service model for startups and science technology-based companies, supported by strategic alliances with UDD Ventures and Amazon Web Services.

Furthermore, we established new partnerships with Linze for vehicle financing, with Despegar to enhance our loyalty program, and with Pingo to enhance our SME value propositions to digital factoring solutions. We will discuss how we expect to benefit from these initiatives in greater detail on the next slide. Before moving forward, I want to review our updated guidance for 2026.

Based on weaker-than-expected macroeconomic performance during the first half, we've revised our nominal loan growth to around 6% from around 7% last quarter. We also expect our net interest margin to remain at approximately 4.6% by the year-end, while cost of risk is expected to be in a range between 1.2% and 1.3%, which recognizes the establishment of additional allowances in the second quarter.

This should be partially offset by tight cost control and solid revenue generation, which we expect to drive further improvements in our efficiency ratio to around 37% by December 2026, from the 38% forecasted last quarter. As a result, our return on average capital and reserves is expected to be on the range of 21%-22% by December 2026.

This incorporates the additional allowances established in the second quarter but excludes the potential effects of further non-recurring events in the coming quarters. Please turn to slide 10, where we highlight several strategic alliances and new initiatives that are expanding our reach and strengthening our value propositions. Starting on the left-hand side, we entered into a new partnership with Linze that integrates Banco de Chile's vehicle financing directly into the digital automobile purchase process.

Through this alliance, customers can select a vehicle and access financing within the same digital journey, delivering a simpler and more convenient experience while maintaining our high security standards.

This allows us to get involved in the auto loan market by widening the value proposition for our personal banking customer base while attracting new customers looking for car financing. We also formed a strategic alliance with Despegar, the largest online travel agency in the region, to reinforce the value proposition of our travel loyalty program.

This partnership provides our customers with an enhanced travel platform powered by Despegar that combines a customer-centric booking experience with our loyalty program benefits, making it easier to plan and book flights, hotels, travel packages, and car rentals. In addition, we recently established a commercial alliance with Fintech Singo to expand access to factoring solutions for smaller SMEs through a streamlined digital model.

This initiative combines Banco de Chile's commercial capability with a more agile and efficient operating model, supporting customer acquisition, business growth, and productivity. On the right-hand side shows B Startup, a new tailored service model designed to support startups and science and technology-based companies throughout their development. B Startup combines a specialized commercial team, financial products designed for specific needs of startups, and a service model that blends digital capabilities with dedicated relationship management.

The initiative also connects clients with a broader innovation ecosystem through alliances with leading incubator accelerators and strategic partners such as UDD Ventures and Amazon Web Services, through which our startup clients can access acceleration and scaling programs as well as cloud-related benefits and support to help them grow. Together, these initiatives reflect how we're leveraging partnerships to broaden and strengthen the value propositions for our diversified customer base.

While it's still in the early stages, we believe that these alliances have meaningful potential to support business growth, enhance customer experience, reinforce customer loyalty, and improve efficiency over time. Please turn to slide 11 to discuss the evolution of our loan portfolio. Total loans reached CLP 40.3 trillion as of June 2026, growing 2.3% year-over-year. This figure includes a one-time effect related to the migration of our outsourced credit card processing platform during this quarter.

Until May, early payments made by credit card customers were booked as other demand deposits until the credit card billing due date. Beginning June 2026, those payments are immediately deducted from the credit card loan balance. Therefore, this change resulted in a one-time decrease in both credit card loans and other demand deposits by approximately CLP 210 billion, which affects the year-on-year loan growth comparability.

When excluding this effect and looking at the portfolio on a pro forma basis, total loans would have grown 2.9% year-over-year, which represents a clear view of the evolution of our loan book. By product, growth varied across our portfolio. Consumer loans increased 0.6% year-over-year, but 5.3% on a pro forma basis when excluding the migration effect mentioned earlier, supported by enhanced value propositions for targeted customer segments.

Residential mortgage loans grew 3.4% year-over-year due to our aim to improve lending margins in some segments. Meanwhile, commercial loans increased 2% year-over-year, up from 0.8% in the first quarter, reflecting a recovery in new corporate lending operations and continued momentum in core SME lending, as shown in the chart at the bottom left. In terms of total loan composition, the chart on the right shows a balanced portfolio.

Retail banking represents 66% of total loans, while wholesale banking accounts for the remaining 34%. Within retail banking, we have a broad mix composed of individuals and SMEs, while in the wholesale banking, exposure is spread across large companies, corporate clients, and multinationals. This mix allows us to capture opportunities across customer segments and economic cycles while reducing dependence on any single source of growth.

As recent quarters have shown, momentum in some areas can help offset weaker activity in others, supporting more stable portfolio performance and a balanced risk profile. The chart at the bottom right reinforces this point by showing the diversification of our commercial portfolio across multiple economic sectors. This broad exposure helps mitigate sector-specific risks and support asset quality through different phases of the economic cycle.

Overall, the combination of business scale, a customer-centric approach, disciplined risk management, firm cost control, and balanced lending exposures across all business segments and economic sectors provide solid fundamentals for profitable long-term growth and consistent performance. Please turn to slide 12. A resilient, low-cost funding structure supported by our leading local currency deposit franchise and strong capitalization is one of our most important competitive advantages.

As shown in the chart on the left, loans are the core component of our balance sheet, representing over 70% of total assets. On the funding side, demand deposits play a central role, accounting for 26% of total funding, complemented by time deposits, long-term debt issuance, and our solid capital base.

This is further illustrated in the top right chart, where the relationship between demand deposits and total loans stands at 36% as of June 2026, the highest ratio among our major peers, representing one of the main drivers for our competitive funding costs and high margins. This reflects both the strength of our customer franchise and the confidence of depositors in our financial soundness.

In fact, as of June 2026, we continued to hold the leading market share in local currency demand deposits among private banks, reaching 19.7%, as shown in the bottom left chart. This position is a direct result of the depth of our customer relationships and the continued success of value propositions we provide to both individuals and companies. Finally, our capital position remains among the strongest in the industry.

As shown in the bottom right chart, our Basel III ratio reached 17.6%, including a CET1 ratio of 13.9%, comfortably above regulatory requirements and ahead of all of our main competitions. This provides significant financial flexibility to support business growth when economic activity reactivates, absorb potential volatility in the short term, and continue creating value for shareholders while maintaining a prudent risk profile.

Overall, the combination of a leading deposit franchise, a diversified funding structure, and a best-in-class capital position remains a key differentiator for Banco de Chile. Together, these competitive strengths reinforce the resilience of our balance sheet and support our capacity to grow through different market environments. In fact, at Banco de Chile, we like to say that our liabilities are our most important assets, as this allows us to generate higher and more stable returns at a lower risk level. Please turn to slide 13.

Operating revenues reached CLP 922 billion in the second quarter, denoting a 20.9% increase compared to the same period last year. A significant increment from the CLP 749 billion recorded in the previous quarter. As shown in the chart on the left, this performance was largely explained by higher inflation during the quarter, together with sustained growth in customer income supported by loan expansion, solid cross-selling, resulting from higher fee income generation.

Based on these drivers, our operating margin, measured as total operating income over average interest earning assets, reached 6.8% as of June 2026, comfortably above our main competition. Importantly, this leadership is not a one-off, instead, it has been sustained consistently throughout our recent history, reflecting the structural strength of our business model that combines the resilience of customer income with our ability to benefit from favorable changes in market factors.

The bottom right chart presents our net operating margin, which incorporates the expected credit losses. Here again, we lead the industry, reaching 5.7% as of June 2026, ahead of our main peers. This is particularly relevant because it demonstrates that our superior margins are not the result of taking higher risks. Even after absorbing credit costs, we maintain the leading margin.

Overall, this evidence reflects the quality and resilience of our income generation capacity, which is based on diversified revenue, a competitive funding structure, and prudent risk management that allows us to deliver industry-leading margins consistently through the cycle. Please turn to slide 14. In further detail, I'd like to highlight the key drivers of our net interest margin leadership and earning generation capacity.

Our NIM reached 4.9% during the first half of 2026, well above peers, supported by improved lending spreads, increased net fee income, and well-oriented adaptive asset and liability management, which enabled us this quarter to maximize the earnings contribution from the higher inflation environment. The chart on the right provides a breakdown of our net financial income. As you can see, net financial income totaled CLP 736 billion during the second quarter, increasing 25.3% year-over-year.

This performance was driven by two sources of income. First, non-customer financial income increased significantly as the management of our financial gaps in the banking book allowed us to capture the benefit of higher inflation during the quarter. As a result, at the bottom of the chart, UF variation reached 2.5% in the second quarter, compared to 1% in the same period of 2025, providing an important boost to revenues.

The chart on the bottom left shows the evolution of our UF gap position in the banking book, which reached approximately CLP 9.1 trillion at the end of June. This position reflects both our structural inflation index exposure, which hedges the real value of our shareholders' equity, and the active management of market opportunities by our treasury team through directional positions in fixed income securities and increased revenues from sales and structuring related to hedging solutions offered to corporate customers.

These actions enable us to offset lower revenues from our trading portfolio due to less favorable evolution of interest rates in the second quarter 2026 compared to last year. Second, customer income remained highly resilient at CLP 473 billion, reflecting stronger income from loans supported by improved lending spreads, particularly in retail banking.

This extends the positive trend we have observed since the post-pandemic normalization of margins and is particularly relevant in light of subdued loan growth. By product, the main contributor was consumer loans, which recorded an increase of CLP 9.7 billion year-over-year, driven mainly by wider spreads and higher average balances.

To a lesser extent, commercial loans contributed by rising CLP 3.5 billion over the same period, also supported by improved spreads and a slight increase in the average balances.

Overall, the combination of resilient recurring customer income, active balance sheet management, and leading funding base continues to be the main support for our superior margins, allowing us to consistently outperform peers across different interest rate and inflation environments. Please turn to slide 15.

Fees continue to be an important and recurring source of revenues for us, supported by our expanding customer base and the increasing contribution of our subsidiaries. One of the main drivers of this performance is our growing customer base, which continues to deepen the use of our products and services. In the second quarter, we reached 2.9 million active customers and 2.6 million bank accounts, while current accounts expanded 7.1% year-over-year, and total fees grew 10.7%.

This reflects the continued success of our digital value proposition and the ongoing enhancements of our bank ecosystem. Importantly, we have achieved this expansion while maintaining the highest standards of customer service, as reflected in our NPS of 77.6%, the leading score in the local industry. The main drivers of our fee income expansion are listed on the left.

Notably, net fee income from transactional services rose 20.4% year-on-year, supported by a 5.7% increase in credit card transactions and an 11.9% rise in debit card transactions. This reflects greater customer activity, supported by the continuous enhancements of our value propositions, including our new alliance with Despegar and the ramp-up of Banchile Pagos, our acquiring and processing business.

Our other subsidiaries also performed well, with fee income from mutual funds going up 6.4%, in line with the 8.7% expansion in assets under management, while our insurance brokerage business advanced 2.8% over the same period on the grounds of improved business mix. The chart on the bottom left illustrates the diversification of our fee base. Transactional services remain the largest contributor, representing 35.6% of total fees, followed by mutual funds and insurance brokerage.

Importantly, the weight of transactional services has continued to increase over time, underscoring the recurring and sustainable nature of this income stream. Finally, the chart on the bottom right compares our fee margin over interest-earning assets with that of our peers. As of June, our fee margin reached 1.4%, ahead of both our main peers, confirming our leadership in fee generation and cross-selling capabilities.

Overall, the combination of a broader customer base, a well-diversified fee structure, and the solid performance of our subsidiaries continue to support robust fee income, reinforcing the quality and sustainability of our earnings. Please turn to slide 16. Prudent risk management is the core to our business and is reflected in everything we do at Banco de Chile. Through this approach, we have maintained stable levels of cost of risk and contained levels of NPLs in our recent history.

Specifically, as shown in the chart on the left, expected credit losses reached CLP 165 billion in the second quarter, of which CLP 50 billion represented the establishment of additional provisions in May 2026. As a result, our cost of risk stood at 1.65% for the quarter.

Nevertheless, excluding these additional provisions, cost of risk would have been 1.15%, basically flat compared to the first quarter 2026, confirming that the underlying performance of our portfolio remains stable.

The decision to strengthen additional provisions reflects a more cautious forward-looking stance and macroeconomic environment that remains uncertain, with external factors becoming increasingly relevant. In particular, geopolitical conflicts have gained complexity and duration, continuing to weigh in on global growth and inflation.

So far, the local economy has been able to absorb these effects relatively well, but their impact could become more significant if that capacity weakens or conflicts last for longer than expected. Domestic factors also deserve attention, as activity and employment have evolved below expectations and could affect future evolution of household income. Against this backdrop, we prudently reinforced our coverage rather than responding to any deterioration already observed in the portfolio.

Looking at the underlying dynamics, the year-on-year increase in credit loss expenses was concentrated in retail banking, as shown on the chart on the bottom right, where delinquency in consumer loans moved from 1.8%-2.1% over the last 12 months, tracking the gradual deterioration in unemployment. This was partly offset by lower risk expenses in commercial loans from wholesale banking, given the improved financial condition of some customers.

Turning to the chart on the top right, our total delinquency ratio reached 1.6% in June, broadly stable compared to the first quarter of 2026, and once again, the lowest amongst our main competitors. This represents a favorable gap versus the industry and reflects the consistency of our underwriting standards and portfolio monitoring throughout the cycle. Given these trends, our coverage remains robust.

Loan loss allowances represent 2.1% of total loans and cover 127% of past-due loans, rising to approximately 230% when additional allowances are included. This provides a meaningful buffer to absorb potential deterioration without compromising our earnings capacity. Looking ahead, we continue to expect delinquencies to converge gradually towards more normalized levels, although the pace may be uneven across products while the labor market and activity remain weak. Please turn to slide 17.

As shown on the chart on the right, total expenses rose below inflation at 2.8% year-on-year in the second quarter of 2026. Despite continued investments in technology, digital capabilities, and business growth, our cost base keeps on growing below inflation. This performance reflects the benefits of our ongoing efficiency initiatives and the digital transformation efforts, which we continue to generate structural improvements in productivity and profitability. As a result, our loans per employee ratio improved 1.7% to CLP 3.6 billion.

Our fees to expenses ratio increased 335 basis points to 59%, and our efficiency ratio declined to 34.5% as of June 2026, well below the industry and among the best in the system. These results reflect the benefit of a broad range of initiatives focused on technology optimization, improved vendor management, facilities efficiency, and organizational simplification.

On the technology front, we continued to capture efficiencies through automation, process streamlining, infrastructure optimization, cloud and licensing rationalization, and the integration of capabilities across the organization. These efforts are helping us reduce external costs while enhancing productivity and scalability. At the same time, the continued digitalization of customer processes is allowing us to operate with a leaner and more efficient service model.

Consumer loan originations increased 8% year-over-year in the first half of 2026, while personnel expenses remained essentially flat and administrative expenses grew below inflation, as shown in the chart on the bottom left. This demonstrates our ability to support business growth without a proportional increase in costs. In addition, the number of branches declined 4.5% year-over-year, reflecting our efforts to align our distribution network with changing customer behavior and increasing digital adoption.

Overall, our focus remains on delivering sustainable productivity gains through technology, process simplification, and operational model transformation, allowing us to support growth while maintaining a disciplined cost structure and industry-leading efficiency levels. Please turn to slide 18. As shown throughout this presentation, we continue to deliver industry-leading profitability supported by a differentiated business model and consistent execution.

During the second quarter, net income reached CLP 391 billion, reflecting the combined benefits of strong recurring customer income, active balance sheet management, disciplined cost control, and a resilient asset quality. These fundamentals continue to translate into superior returns. As of June 2026, our return on average assets reached 2.4% and our return on average equity reached 22.9%, both comfortably above industry levels and among the highest in the Chilean banking sector.

Importantly, these results are not only driven by a single business line or temporary factor. They reflect the strength of a diversified franchise supported by a leading funding base, robust fee generation, prudent risk management, and a strong focus on productivity and efficiency.

As we move into the second half of the year, we remain focused on executing our strategy, strengthening customer relationships, advancing our digital transformation agenda, and delivering sustainable value creation for our shareholders. Please turn to slide 19.

Before taking your questions, I'd like to highlight four messages from this presentation. Beginning with the economy, we see the weakness in the first half of this year as transitory since it was concentrated in the supply side sectors, mining above all.

Our GDP forecast is approximately 1.3% for the year, consistent with growth close to 2% in the second half, and 2027 should be stronger with activity approaching 3%. Inflation in this environment should close the year near 4%, keeping the policy rate at 4.5%, and in 2027 it should reach a level around 3%.

On profitability, we delivered net income of CLP 391 billion this quarter with a return on average equity of 27.9% in the period, well above the industry. It's important to highlight that we achieved this while at the same time establishing additional provisions.

This reflects the earnings capacity of our franchise, which allows us to deliver strong results and reinforce our balance sheet at the same time. On efficiency, total year-to-date expenses grew 2.6% year-on-year, meaning our cost base contracted in real terms while we continued investing in technology and digital capabilities.

Our efficiency ratio reached 31.3% for the quarter and 34.5% for the first half, close to seven percentage points better than the industry. As a result, we have improved our full-year guidance to approximately 37%. On capital, we remain one of the best capitalized banks in the industry, closing the quarter with strong CET1 and total capital ratios.

This gives us the flexibility to fund growth, sustain attractive dividends, and navigate a more uncertain environment from a position of strength. As I've said before, our strategy is straightforward: to serve our customers well, operate efficiently, manage risk properly, and maintain a solid capital base. This quarter's robust results reflect the consistency of that approach. Thank you, and if you have any questions, we'd be happy to answer them.

Thank you. Our first question comes from Ernesto Gabilondo from Bank of America. Your line is open. Please go ahead.

Thank you. Hi, good morning, Rodrigo, Pablo, and Daniel. Thanks for the opportunity to ask questions. Congrats on the results. A couple of questions from my side. The first one is on the tax reform. It's the same question I did to the rest of the banks.

If we assume a normalized inflation of 3% over the next years, how should we think about the evolution of your effective tax rate with the new tax reform? That's my first question. On my second question is on your ROE guidance.

I was a little surprised because you pointed out that the economy is looking much better in the second half. You have now the reforms likely being approved. Even though you reduced by around 50 basis points the ROE expectations of your guidance for the year.

Just wondering why are you becoming a little bit more conservative from your previous guidance? How should we think about your long-term ROE and ROIC? What would be the sustainable level in the next years? Thank you.

Hi, Ernesto. This is Daniel Galarce. Well, regarding your question about the tax reform, well, it's clear that we will have a benefit in the long run due to the lower tax rate, of course. This effect would be around CLP 40 billion per year or something like that from the third year onward.

We expect also to have a first time, a one-time effect, negative effect when the law is actually enacted of around CLP 70 billion, CLP 69 billion in income tax in the first year.

However, in the long run, as you say, with an inflation rate of around 3% normalized, we should expect an income tax rate, an effective income tax rate of around 20%. In the twenties, excluding any other tax deduction or tax surcharge, we should have something like that, 19%-20% of effective tax rates.

Okay. This is Pablo speaking. Well, thanks for your question. In terms of ROE, the guidance, what happened there, it's important to note a few things. The guidance for cost of risk, we increased from 1.2%-1.3% from the previous numbers. Obviously, we also saw a reduction in inflation.

Combining these two effects, it has a slight reduction in terms of our guidance, the overall guidance for the end-of-year return on average capital. In terms of our sustainable levels of ROE, we have to take into consideration the long-term effects occurring in Chile.

The overnight interest rates are a little bit higher than they were in the past. Inflation should tend to be a little bit higher. Plus, if we look at other areas, we can continue to improve our mix, and we're looking at deploying the capital that we have.

It's challenging to see an exact number today, our aspiration is to be number one in the industry. Our aspiration is to move to the number one position in profitability, as you saw in the slides. Rodrigo, did you want to?

Well, thank you for the question. I'd like to add just a couple of ideas. Very important to be aware of the importance of the macro drivers here in our guidance for the long term. I'm saying this because we have different opposite forces.

On the one hand, we have different risks in the rest of the world, mainly those related with the evolution of the geopolitical conflict, because Chile is a very open economy. We have free trade agreements with more than 90% of the global economy. More than 50% of the GDP is the trade total trade volume.

That's why it's very important to analyze the evolution of, for example, in the almost trade, etc., because of the potential impact in key sectors, transportation, natural resources, etc.

On the other hand, we have a better, more optimistic view about the evolution in Chile, because we think that there is room to increase the economic growth. In fact, we think that it's reasonable to expect an economic growth of around 3% for the next year. There will be a positive impact from the changes in taxes.

There will be a positive impact from the reforms to the improvements in the permitting system in Chile. The lower inflation in the second half of the year will have a positive impact as well in disposable income for households. At the end of the day, what I'm trying to say is that we have a more optimistic view about the GDP, we have to pay attention to evolution to the risk in the rest of the world.

At the end of the day, macro drivers will play an important role in our business in the future.

Maybe I said it indirectly, but in terms of the change in cost of risk, that was due to the additional provisions and basically for our ROE guidance or return on average capital guidance, that's an impact of around 90 basis points.

Okay. No, this is super helpful, Rodrigo, Pablo, and Daniela. Just to follow up in terms of the ROE or return on average capital with the reserves and dividends, how should we think about the trend for next year and the next years if inflation is going down, but at the same time, you are saying you have a more optimistic view, there are economic growth. How should we think about these sustainable levels?

Should it be the level we are seeing today, a little bit better or lower because of inflation?

I think one of the main uncertainties that we have today, we're seeing an improving economy. We should see more demand for growth in loans. We really need to deploy capital in order to see the evolution of our bottom line and the ROE figure. As I mentioned, our aspiration is to be number 1. We're comfortable with the levels that we have today.

Obviously, it's a more profitable banking industry today than prior to the pandemic, when interest rates were lower, the yield curve was flatter. We should see, and as we have seen today, we have stronger net interest margins than we had in the past, but with a portfolio that's more focused on lower risks, lower margin products. We've been able to do that, thanks to market factors, and will be done into the future. We should be able to grow the portfolio.

That should translate into a better bottom line, at the same time, we have to consider there should be a little bit more competition. Inflation should come down a little bit. We're comfortable with levels of around what we have, around 20% is aspirational. Above 18% is what we've always mentioned. It really depends in terms of the cycle, where we are with inflation, where we are with interest rates, the evolution of the economy.

The macro drivers at the end.

Yeah.

Okay. No, understood. Perfect. Thank you very much, Pablo.

You're welcome. Thank you.

Thank you very much. Our next question comes from Andrés Soto from Santander. Your line is open. Please go ahead.

Good morning to all, and thank you for your presentation. My first question is regarding your GDP expectations for 2027. You mentioned it could reach close to 3%. When I look at Bloomberg consensus, it is showing 2.7%, not very different from what you guys are saying. To what extent, you see upside to this number to a 2.7% that the consensus expects based on the likely approval of the Reconstruction Law and other regulatory measures that the government is adopting?

Hi, Andrés. This is Rodrigo Aravena. Just to be clear, our GDP expectation for this year is 1.3%, which is consistent with an economic growth on average of around 2% for the second half of this year. In the first half, there was a negative growth of -0.2%. What we are expecting is an upward trend in GDP growth over the next quarters.

In the short term, the key drivers will be related with, first, the reversal of negative shocks that we saw in the first half of this year. For example, in the mining sector, we saw that there were negative growth of -10%, -12% in some months on a year-on-year basis in the mining sector because some specific and temporary shocks. For example, fishing decreased by almost 20% in the first quarter of this year.

The industrial sector as well, there were contraction of almost 10%. We're expecting that these negative shocks will be reversed in the second half of this year. That's why we expect better cyclical courses in the second half of this year, ending the 2026 GDP growth of around 1.3%.

For the next year, we expect an economic growth of almost 3%, which we see in line with the consensus according to different forces, because there will be a positive impact of the lower inflation rate on disposable income. We are not expecting negative shocks in the mining sector, in the infra sector. We will not have a negative impact, we expect, in the next year because El Niño. Also we expect a positive impact, a gradual positive impact from the Reconstruction Law, the bill today.

There will be a positive impact in the next year, in 2028, attributable to the new law. Just to be clear, that 3% growth is our forecast for the next year, not for 2026, by the way.

That's very clear. My question was if 2.7% for 2027 was even conservative. I understand the government has more optimistic estimates for the impact of the Reconstruction Law?

Yes. The official estimate for the Reconstruction Law, attributable to that law, is an economic growth that will improve in potential terms from the current 2% potential growth to around 3.5%. In fact, we have a more conservative view, expecting a 3%. At the end of the day, it's reasonable to expect an improvement in investment rate, explaining at least 100 basis points of higher economic growth in the next year.

Understood. On regulation, we saw already a draft for the proposal to change from individual models for risk-weighted assets and provisions, instead of the standard models provided by the regulator. I understand this is a medium-term driver, have you guys made any estimate on the potential impact in terms of additional capital that this change will imply for Banco de Chile?

Hi, this is Daniel Galarce. Well, today we don't have a specific estimate. We are clear that this is going to benefit us given the asset quality of our loan portfolio. However, there is still some room to improve and precise some technicality in the regulation. Actually, this is a proposal for changes in the current regulation that is subject to comment for a three-month period.

We need to check every specific detail in the regulation yet. We are certain that, of course, this will benefit us, given the quality of our loan book. Also it's important to mention that there is another proposal from the CMF now regarding market risk-weighted assets. As we mentioned in our press release, this will probably provide more capital adequacy for us of around 25 basis points of capital indicators once enacted, the final rule.

This is basically at least, it is the minimum, considering that we also could benefit from the exclusion of some derivative transaction as well.

Thank you, Daniel. Considering these regulatory tailwinds and your already strong capital levels, if all of these materialize, you guys will be running at a core equity tier one probably above 16%. How do you guys see your current capitalization level and the use of this capital, considering the expected growth for next year and that capital will continue to accumulate in your balance sheet?

Well, as we have mentioned in the past, in the normal course of business, we work with the main assumption that is or a kind of specific dividend payout of around 60% in the long run. Of course, we have capital buffers and several capital gaps today that we expect to use in the future as long as the economy reactivates, and also given all the macro trends that Rodrigo already said. In the long run, using our capital, we expect to float around 100 - 200 basis points above the regulatory limits when we use the capital for loan growth and for business growth.

Understood. Thank you very much.

You're welcome.

Thank you so much. Our next question comes from Neha Agarwala from HSBC. Your line is open. Please go ahead.

Hi. Thank you for taking my question. What are your expectations for loan growth for next year? Where do you see the opportunities for a pickup? Any particular segments that you would like to highlight?

My second question is, next year, inflation will probably ease slightly. What are the levers that you have in other business lines to offset a bit of NIM pressure that we might see, either on costs or fees, or anything that you would flag could be a catalyst for next year? Thank you.

In terms of loan growth, as Rodrigo mentioned with the regulatory changes, we're expecting a stronger GDP for next year. This should translate into a much stronger demand for loan growth, is what we're expecting, especially in terms of commercial loans. We're expecting a stronger expansion because there should be a lot of loans in the pipeline, or demand in the pipeline for new loans.

We should see stronger growth, especially in large corporate banking. In terms of SMEs and individuals with a stronger economy, better unemployment levels, this should also translate into stronger loan demand from these customer segments, which are our core or our focus areas of growth.

Since we have a large amount of capital that we want to deploy, we have the capability to grow more quickly in these areas as well. There should be the demand, and we also have the desire to expand our growth next year.

You can think of growth levels, it could be a surprise to the upside, but 7%-8% is reasonable, maybe even more. In the past, there were periods of times when growth was over 2 times loans to GDP growth. For the second question, can you repeat the second question, please?

Levers for next year to improve profitability given NIM could likely be softer.

We have to take into consideration that the level of inflation for this year is 1% above the normal level of inflation. As we continue to grow in more profitable segments today, if you look at their loan book, the mix that we have today is more focused on lower risk segments. We had a period of time that we grew very quickly because of inflation during the pandemic in the mortgage loan book.

Today, the proportion of mortgage loans to the total loan books is much larger than it was in the past, and our main key focus in growth is to grow in the segments which are consumer loans, SME loans. Even in corporate lending, they all have better margins than mortgage loans. This should help maintain the levels of NIM between our longer term, depending on interest rates, between 4.5%-4.7%.

It's important to mention for the bottom line that the cost of risk and the delinquencies, we should start to see improvements most likely with a better economy, stronger employment figures. We should start to see slight improvements in terms of delinquencies across the board. Maintaining levels between around the 1%-1.1% is reasonable.

Additional provisions. This year, we had additional provisions. If the economy is growing better, there's less uncertainty. Also, we shouldn't have that for next year. Obviously, all the digital initiatives are making everything that we do more efficient and productive for the bank. That should help maintain our efficiency levels below the 40%, which is our long-term level today, our target, helping us to maintain that strong bottom line.

Super. Thank you so much.

Thank you so much. Our next question comes from Juliana Ohara from Goldman Sachs. Your line is open. Please go ahead.

Hi, everyone. Thank you for taking my question and congratulations on the results. I have a quick one. Some peers were discussing increased competition, which were pressuring fees, but you seem to be doing well in your transactional services.

Could you share your strategy behind this and if double-digit growth in fees can be sustained through the year? Thank you.

Hi. We've been growing strongly in terms of fees thanks to our customer segments and focused products. In terms of transactional products, we've had good growth in terms of cards purchases, which has been driving the activity in this product segment. Also, we have the new acquiring business, which was also adding income to the fee lines by Chilepagos. That's been an important help.

It's also important to mention is the mix of customers that we have. We have a very important mix of upper-income individuals that use our bank as their primary bank, and one of the products that they use is our mutual fund business. The mutual fund business has also been deepening their share of wallet and we've been leveraging onboarding advisory for these customers. We've seen a strong level of AUM growth as well as fee growth from this segment.

When analyzing the different banks, it also maybe affects the type of customers that we have. We're more of a bank that's focused on upper-income individuals, and we've seen good transactionality from our customers, which has been driving this above 10% or around 10% growth over the last quarters.

In terms of the long term, everything that we've been focusing on in increasing digital onboarding, increasing our customer base, increasing or having a large customer base from the FAN Emprende digital accounts, it makes it easier for us to expand our customers into the bank.

We've been maintaining more or less a level of customer growth, like high-quality customer growth, which is a customer with a current accounts package in the bank. If we look at the last 10 years or so, the growth has been around 7% and we're maintaining that.

One of the key drivers for our growth in fees is that expansion of customers. Also for the next years, with a better economy, stronger growth, more demand from commercial loans, we should see more activity from M&A, more corporate banking fees as well. It should maintain our numbers in the low double digits or high single digit level of fee growth.

Super clear. Thank you.

You're welcome.

Thank you so much. Our next question comes from Diego Márquez from J.P.Morgan. Your line is open. Please go ahead.

Hi, Rodrigo. Pablo, Daniel. Thanks for the space for questions. Just two quick questions on my side. One on the lower tax rate that is expected for the next few years, could this drive change in deferred tax assets going forward?

Basically, do you expect any impairment here? The second, which you kind of mentioned in your previous remarks, but given the additional provisions this quarter towards 2027, could we expect maybe lower provisions on a positive macro backdrop? That's it on my side.

Hi, Diego, this is Daniel. Regarding the tax reform, as I said, that we will have two main effects, I mean, in the long run, when the tax rate becomes to 23%, we'll probably have a positive effect of approximately CLP 40 billion per year in terms of income tax or lower income tax. No?

Also regarding deferred tax assets, of course, during the first year or the year of enactment of this law, we will have a negative effect of approximately CLP 7 billion of higher income tax. That will probably be in 2026, given that the reform was already passed and is expected to be enacted very soon.

In terms of the additional provisions question, well, maybe the reason why we did additional provisions is because of our cautious stance in the macroeconomic activity that was uncertain. We had the external geopolitical tensions that Rodrigo mentioned, I believe. Domestically, we had everything that Rodrigo mentioned of the economic activity.

Employment has been below expectations, and this could affect the household income. We decided to take these additional provisions in this period of time, a more conservative hope to ensure an adequate coverage. It's also worth noting that during this time, we had also extraordinary revenues from the high inflation. The second quarter was very strong. We had very strong operating income. Even despite that, we still had this prudent provisioning approach and a strong bottom line.

Looking at the future, if the conflict in the Middle East is resolved quickly and the economic activity begins to improve, obviously we can't rule out that we could reassess the appropriateness of the levels of additional provisions that we have, and they would be consistent with our risk return approach. In the future, we have to be evaluating very closely in terms of what's occurring locally and internationally, and we'll take a decision based on that, on the evolution of our additional provisions, which would affect the overall provision number for future periods.

Very clear. Thank you.

Thank you very much. I'm not seeing any more questions. Perhaps I can hand it back to the Banco de Chile team for the closing remarks.

Once again, thank you for being with us for this conference call, and we look forward to speaking with you again in the next quarter's results.

This concludes the call for today. We are now closing all the lines. Thank you and have a nice day.

Good afternoon. 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 Galarce, 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 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, 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 strategic 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 achieved important milestones in non-financial areas, such as the increased adoption of digital and AI tools, productivity, and ESG, which we'll discuss in more detail throughout this presentation. As usual, I'd like to begin with an analysis of the economic environment. Please turn to slide number three. 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 external 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 driven by higher fuel prices during the month. As a result, inflation during the first quarter reached 1.4% year to date. Also, CPI, 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 chart.

CPI has likely increased to around 1.6% for the month of April, driven by further increases in fuel prices in recent weeks and 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 adjustment in inflation expectations. As shown in the chart on the top right, break-even 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, expectation rose even further, reaching almost 5%. This shift in market implied expectations is also consistent with the results of the economic expectations survey, which now anticipates inflation of 4.3% this year. For longer horizons, expectations remain anchored at the 3% target.

In this environment, the Central Bank of Chile has adopted a more cautious monetary policy stance. In March, the board not only decided to keep the policy rate unchanged at 4.5% 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 baseline scenario, which increases the probability of more adverse impact on global activity and inflation. It will closely monitor the factors that could increase the pass-through and the persistence of inflation on local prices. Board members noted 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 four. The Chilean economy expanded by 2.5% in 2025. This stronger-than-expected performance was largely driven by more dynamic domestic demand, shown in the top left chart. Specifically, as the chart on the bottom left displays, 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 has 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 leading indicators point to growth ahead. As shown 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 8.9% from 8.7% a year earlier. While unemployment remains elevated compared with previous cycles, we expect 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. Please turn to slide number five. 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 stance 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 push 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 unchanged at 4.5% through 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 reform, 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. This discussion 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 six. As illustrated in the chart on the top left, the banking industry posted net income of CLP 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%, consistent with recent quarters. On the credit 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 1.7%, with consumer lending experiencing the sharpest contraction at 14.1%, followed by commercial loans at 9.9%, while mortgages stand out as the only segment posting real growth, increasing by 20.2% over the same period. Looking forward, we expect industry loan 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 policies. Consumer mortgage loans are also expected to grow between 4.5% and 5% nominal, reflecting a moderate rebound in consumption and ongoing effort 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%-3.8%. NPLs are projected at 2.3% and 2.4%, and credit loss expenses are 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 eight. 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 the organization while maintaining top service quality, low levels of attrition, solid ESG foundation reflected in our strong ratings and corporate reputation results. Our midterm targets, as shown on the bottom of the slide, continue to anchor our execution. We are targeting top positions in returns, DDA balances in local currency as well as commercial and consumer lending, a cost-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, importantly, one that is already reflected in our operating and financial performance. Please turn to slide nine, 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 CLP 40.2 trillion, up 2.6% quarter-over-quarter. Operating revenues came in at CLP 749 billion, with a net interest margin of 4.1% despite lower than normal inflation for the period. Net income was CLP 269 billion, 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%. Our efficiency ratio was 38.4%. Our Common Equity Tier 1 ratio remains 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 show the positive trends. 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 FAN 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 skill certification academy and the application of advanced AI and specific use cases across the organization, which has allowed us to achieve priority 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. 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%-22.5%, excluding non-recurrent events. 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 labor 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 CLP 40.2 trillion 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 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 FOGAPE 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 life cycle 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 Mi Banco 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. 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. 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-over-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 to benefit 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 stand 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 DDA 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 and 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 peers. 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's 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 implemented 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 CLP 749 billion in the first quarter of 2026, flat compared to the fourth quarter of 2025 and down from CLP 779 billion 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 CLP 22 billion, 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. 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. We will take a closer look at the composition of our net financial income and net interest margin.

Total net financial income reached CLP 542 billion, as shown on the chart on the top right. This was composed of CLP 460 billion in customer financial income and CLP 82 billion in non-customer income. On a year-over-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 rates.

However, this was partially offset by a decline in non-customer income, 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 UF gap in the banking books stood at CLP 8.9 trillion 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 in 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 an investor demand. Stock brokerage delivered a strong year-on-year growth as 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'll review our credit loss expenses for the quarter. Expected credit loss expenses reached CLP 114 billion 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, stood at 1.16%, 23 basis points above the 0.93% recorded a year earlier, in line with our full year guidance of 1.1%-1.2%. On a sequential basis, however, cost of risk remained relatively flat. It is important to highlight some key movements that led to this annual rise. The first quarter of 2025 represented a period of lower than normal risk expenses, particularly in 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 CLP 2 billion 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 broad-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.

This quarter, expenses totaled CLP 288 billion, 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 CLP 3.6 billion, 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 services, servicing models, which now cover around 20% of the retail clients, digital enhancements that supported 16% year-on-year increase in consumer loan originations. 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 Banchile Pagos.

Personnel expenses declined slightly by 0.4% year-over-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're 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 CLP 269 billion 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. That 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 CLP 269 billion 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 reached 38.4% this quarter, well below the industry, and remain confident in sustaining these levels going forward. Finally, on capital remain the best capitalized bank amongst our peers, which gives us flexibility to fund growth, maintain attractive dividends and 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. If you have any questions, we'd be happy to answer them.

Thank you. We'll now move to the question and answer section. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you are dialed in by the web, you can also ask a voice question. We'll just wait a moment or two for the questions to come in.

Okay. We have our first voice question from Diego Márquez from JPMorgan. Please go ahead. Your line is now open.

Hi, Rodrigo, Daniel, Pablo. Thank you for taking the questions. Just a quick one regarding higher inflation. You slightly increased your ROE guidance, but kept your loan guidance unchanged. Just wanted to see if we could see any further upside to the loan growth, given high inflation, and maintaining your 7% guidance, and in which segments we could see the most upside. An additional question regarding potentially higher ROE, saying given inflation above this 21.5%-22.5% that you guided. Thank you.

Hi, Diego. Thank you very much for this question. This is Rodrigo Aravena. 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 of inflation. However, for the next quarter, it's likely to have a normalization as long as the situation in the rest of the world, the geopolitical conflict tend to be more normalized, right? That's why we increased our CPI forecast for this year from 3% to 4.3%. I mean, what I'm trying to say is that we're gonna have a high inflation in the second quarter of the year. Probably, inflation, the total inflation in the second quarter will be between 7%-8%.

For the next quarter, we are gonna have a much lower inflation, achieving a total inflation in the year around 4.3%. For the next year, we can rule out an inflation rate of around 3%. Also, we can rule out an inflation slightly below the 3% because the supply shock tend to generate a more temporary impact of inflation. That's why our adjustment for the CPI forecast for this year was only 150 basis points, even though the very important rise of inflation for the second quarter of this year. Pablo will supplement that answer.

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. 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. Chile since it's an open economy, is also affected. 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. Again, we're not seeing that change in the nominal figures. In terms of ROE, what we said in the guidance was around 21%-22%.

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 impacts of this more difficult situation is arising in terms of the global trends and how that affects our bottom line. There could be changes based on new news from these events.

All very clear. Thank you, Rodrigo and Pablo.

You're welcome.

Thank you. 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 NIM 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 with the changes that you mentioned? Could that lead to maybe an extraordinary payout of dividends or an increase in the dividends in the near term? Thank you so much.

Hi, Neha. This is Rodrigo Aravena. Thank you very much for this question. In our baseline scenario, we're not expecting changes in the interest rate from Central Bank because we are expecting only a temporary rise in the total inflation in Chile. It's important to remember that in Chile, the monetary policy rule is based on an inflation rate at 3% over the next two years. Given that, we're expecting only a temporary impact of inflation, and we maintain our forecast for the inflation rate at 3% over the next two years. 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 on inflation, there's room to continue maintaining the interest rate at the current level. Obviously, if the inflation rate were higher, indicate that, for example, the oil price continue hovering around 100 per barrel, for example. In that case, we would have an interest rate hike in the future. So far it's not our base scenario.

Adding to that, in terms of changes of the overnight rate or interest rates, we don't have so many floating rates in the bank, it's not an immediate impact. 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. We should see that. More importantly, in terms of for the year, as Rodrigo mentioned, our baseline scenario is moving from a level of inflation of 3%, 4%. It's a slight variation versus the prior year. This is also included in our numbers, where we increase the net interest margins from 4.5% to around 4.6%.

In terms of the capital ratio, changes, I'll pass that to Daniel Galarce.

Thank you, Pablo. Hi, Neha. This is Daniel Galarce. Well, regarding your questions, certainly the use of internal models for banks with good asset quality such as Banco de Chile would result in benefits in terms of capital freeing up. 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 could 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 benefits 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 two on your phone keypad and wait for your name to be prompted. If you are connected via the web, you can also request to ask a voice question. Our next question comes from Daniel Mora from Credicorp 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 of, on NIM 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. As I mentioned, for net interest margin, the change is around 20 basis points. With that, you'd have an effect of, I don't know, around 50 basis points higher in net interest margins than we'd have in benefit in the bottom line. It's more important that for the full year, it's not so relevant. For the full year, we have a change versus 2025 of only 1% in terms of inflation.

This is a quick spike up, but it comes down very quickly to reach a level of inflation of 4% versus 3%. That's the reason why we increased the level of ROE for the year-end, also because of this higher expectations of inflation, not including any other one-time events that could occur during the year.

Sorry. Yeah, just to clarify, the estimate of 2.5%-2.8% of inflation is a estimate of UF variation of the quarter rather than the CPI of that period. Just to clarify.

Perfect. Thank you so much. Very clear. Thank you for the clarification. Yes.

Thanks.

You're welcome.

Okay. Thank you. Just the final reminder for any remaining questions, if you are connected via the phone, please press star two 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.

Okay. Looks like we have no further questions. I will pass the line back to the team for their closing remarks.

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.

Good afternoon, and welcome to Banco de Chile's Fourth Quarter 2025 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 Galarce, Head of Financial Control and Capital Management. Before we begin, I'd like to remind you that this call is being recorded, and the 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 notes 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 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 #1 in net income and return on average assets, #1 in net fee income and #1 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 CLP 1.2 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%, [indiscernible] regulatory requirements and peers. Also, our risk indicators continue to be among the strongest in the industry, supported by a 223% coverage ratio and CLP 661 billion in additional provisions reflecting our sound [ with ] 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 #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 [indiscernible] 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 [ growing ] 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 #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 [indiscernible] 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 U.S. 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 CLP 1.2 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 1.4x. 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 [ de ] 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 3 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 U.S.-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 CLP 266 billion. And for the full year, we reached CLP 1.2 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 CLP 749 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 CLP 3 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 CLP 39.2 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 U.S. reached CLP 8.8 trillion in December 2025, increasing relative to the third quarter, mainly due to the growth in U.S. assets and the amortization of the previously issued denominated -- U.S.-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 CLP 116 billion, bringing the full year figure to CLP 382 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 CLP 15 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 CLP 6 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 CLP 9.8 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 CLP 19.6 billion loan volume and mix effect, entirely concentrated in the Retail Banking segment as well as CLP 3.4 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 CLP 1.5 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 CLP 293 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 CLP 1.1 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 5 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] Our first question is from Ernesto Gabilondo from Bank of America.

Thank you. Rodrigo, Pablo and Daniel, and thanks for the opportunity to ask questions. 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 5 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.

Our next question is from Andres Soto from 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 1x the loan elasticity of Chile because we're expecting Chile to grow around 2.5% plus inflation of 3%, we're below the 1x.

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 2x. Probably that's more challenging to achieve by the medium-term goal or level of reasonable is around 1.4x, 1.5x, 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 4 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 [indiscernible]. 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 3-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%, 1/3 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

Our next question is from [ Lindsay Shima ] from 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 [ copper ] 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 [indiscernible], 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.

Our next question is from [ Daniel Mora Adela ] from 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.

Our next question is from Neha Agarwala from 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.