Banco de Chile Sponsored ADR Aktie

Good afternoon, and welcome to Banco de Chile's 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's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements.

I will now turn the call over to Mr. Rodrigo Aravena. Please go ahead.

Good afternoon, everyone. Thank you for joining this quarterly conference call where we'll 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 an important milestone in nonfinancial areas, such as the increased adoption of digital and AI tools, productivity and ESG, which we will discuss in more detail through this presentation. As usual, I'd like to begin with an analysis of the economic environment. Please turn to Slide #3.

The beginning of this year has undoubtedly been marked by a significant shift in global conditions, driven by the escalation of the geopolitical conflict in the Middle East. Tensions in global energy markets have led to a significant external supply shock with important consequences across the global economy, particularly in terms of inflation. As we've 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 this pressure to intensify in the short term as can also be seen in the chart. CPI has slightly 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 raise 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, breakeven inflation rates implied in swaps have increased by more than 100 basis points, moving above 4% for this year. In fact, a few weeks after the beginning of the war, expectations rose even further, reaching almost 5%. This shift in market implied expectations is also consistent with the results of the economic expectation survey, which now anticipates inflation of 4.3% this year. For longer horizons, expectations remain anchored at the 3% target.

In this environment, the Chilean Central Bank has adopted a more cautious monetary policy stance. In March, the Board not only decided to keep the policy rate unchanged at 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. Accordingly, it will closely monitor the factors that could increase the pass-through and the persistence of inflation on local prices. Thus, 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 and economic activity. Please go to Slide #4. 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, at the chart on the bottom left display, there's been a clear shift in the composition of growth with consumption investment making a larger contribution to overall GDP growth. In 2025, gross investment grew by 7% after contracting by 1.6% in 2024 despite overall GDP growth remaining broadly similar in both years.

Consumption also improved with growth accelerating from 1.4% to 2.8% over the same period. Investment momentum strengthened in the fourth quarter as gross investment expanded by 9.7% year-on-year, supported by a strong 22.9% increase in machinery and equipment investment. Nevertheless, monthly GDP growth has slowed at the beginning of this year. This can be explained by weaker performance in sectors such as mining as well as a normalization in commerce, partly reflecting a high comparison base from a year earlier. However, several 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. Thus, 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 #5.

In terms of activity, we expect GDP to grow in line with its potential. Our forecast of 2.1% for 2026 implies a slight slowdown compared with last year, reflecting both weaker global growth expectations and a less expansionary fiscal 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 put inflation significantly higher in the first half of the year.

Our baseline scenario assumes a gradual normalization in international oil prices during the second half, together with contained second round effects largely limited to indexed prices, while inflation expectations remain anchored and labor cost pressures stay moderate. Under this scenario, we expect the Central Bank to keep the policy rate 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 3-year period, greater tax certainty for future investment, lower municipal property taxes on housing and improvement to the permitting and licensing framework. This discussions are expected to take time and implementation is likely to be gradual.

Before moving to the bank analysis, I'd like to review the main trends observed in the local banking industry. Please move to next Slide #6. 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 nonperforming 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 at around 4% and supported by improved business sentiment and investment under a more favorable market-friendly policies. Consumer and mortgage loans are also expected to grow between 4.5% and 5% nominal, reflecting a moderate rebound in consumption and ongoing efforts to support the housing market, considering higher expected inflation in 2026 and a [ pause in monetary ] easing, we have revised our industry net interest margin outlook to a range of 3.6% to 3.8%. 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 8. This slide summarizes our strategy, committed to excellence and proven by results. At the core, our strategy remains unchanged and well executed, customer centricity, efficiency and productivity and sustainability. These 3 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 6 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-to-income ratio below 40%, a Net Promoter Score above 73 and rank among the top 3 positions in corporate reputation. In summary, we have a strategy that is disciplined, consistent and resilient and importantly, one that is already reflected in our operating and financial performance.

Please turn to Slide 9, which provides a summary of our first quarter 2026 highlights. The list at the top of the slide shows our key financial metrics for the quarter, which we will walk through in detail in the next few slides. Total loans reached 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 and 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% and our efficiency ratio was 38.4%. Our common equity Tier 1 ratio remained solid at 13.3%, even after paying dividends above the provisioned amount. Some important advances I want to highlight this quarter are listed in the middle of this slide. On the commercial front, loan originations showed a positive 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 fund account base grew 22% year-over-year in March 2026 and digital current account openings expanded by 35% in the same period, reinforcing our position in digital onboarding and financial inclusion while diversifying our customer base through the attraction of new customers. On AI adoption, we continued scaling capabilities through our digital 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. And on sustainability, we're proud to report that MSCI upgraded our ESG ratings from BBB to A, and we were included in the S&P Global 2026 Sustainability Yearbook. Finally, it's worth mentioning that our 2025 annual report was released in March, aligned with international reporting standards. In terms of our guidance, we have made some adjustments to reflect updated inflation expectations and the last developments affecting the economic environment, given the information we have so far.

Our guidance is based on our baseline scenario and does not incorporate potential impacts from additional geopolitical escalation or other nonrecurring 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, our return on average capital and reserve guidance has increased to a range of 21.5% to 22.5%, excluding nonrecurrent events.

With that said, it's important to acknowledge the risks surrounding this outlook. The escalation of the conflict in the Middle East remains the most significant source of uncertainty, together with domestic factors such as the still weak recovery in the 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 an annualized pace above 10%.

The recovery reflects the effort we are making to take back growth, particularly in commercial lending, where we regained market share. From a product perspective, the dynamics across our loan book remain differentiated. Consumer loans grew 5.1% year-on-year, supported by both installment loans and credit card lending as household consumption continues to recover. On the other hand, residential mortgage loans rose by 3.2% year-over-year, slightly below the industry's growth of 4.4% as of March 2026. Commercial loans, while only up 0.8% on an annual basis, grew 4.8% sequentially, a meaningful shift driven by the new corporate lending operations, particularly in public infrastructure and concessions as well as continued momentum in SME lending once 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 2 years ago, merging our marketing division into our technology division, given the synergies 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 preapproved offers for micro loans, 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 preapproved customers.

During 2025 alone, we granted more than 24,000 micro loans and FAN credit cards through this approach. And in the first quarter of 2026, we continue to scale these initiatives, extending preapproved offers across products. We are very proud that today, 1/3 of our current account openings now originate from the FAN customer base. Meanwhile, our SME portfolio expanded by 3.6% year-over-year, driven by a strong rebound in installment commercial originations for the segment, up 17.7% annually. This trend highlights the healthy underlying demand and effectiveness of our strategy focused on supporting entrepreneurship.

The Wholesale Banking segment was essentially flat year-on-year, but improved significantly on a sequential basis, expanding 9.4% quarter-over-quarter. This growth was driven by proactive commercial efforts that materialized in important operations related to infrastructure and concession projects, enabling us to recover market share in commercial loans. Turning to Slide 11. We continue 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 stands at 37.4%, once again the highest among peers. This not only reflects our lower cost of funding, which supports superior net interest margins, but more importantly, reflects our strong brand, customer engagement and the trust we've built across all of our business segments. Our retail business accounts for 56.6% of total 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 is an upside to our capital ratios. The CMF recently announced it will reinforce the process of validating internal models for credit risk, an option that has always been available under the local Basel III framework, but has not yet been pursued by the Chilean banking industry.

For a bank of our size, this process will be 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 0, 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 chart to the right, reached 6.1% on an annualized basis, fully in line with our pre-pandemic average for the 2015 to 2019 period. Hence, even in a lower inflation environment, the strength of our business model, our funding advantage, our lending spreads and our fee generation capacity continues to deliver industry-leading margins.

More importantly, our net operating margin, which incorporates cost of risk reached 5.2%, above our historical average and above our peers, confirming that our profitability is not only resilient, but also supported by sound asset quality. We will go into more detail of the composition of operating income, fee performance and risk dynamics in the following slides. Please turn to Slide 13, 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 noncustomer income.

On a year-on-year basis, customer financial income has remained essentially flat, while noncustomer income decreased 43.5%. On a sequential basis throughout 2025 to 2026, customer and noncustomer 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 noncustomer 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 noncustomer income. It's important to mention that as of March 2026, our UF GAP in the banking book 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 and cost of funds in the context of lower interest rates. Despite these factors, our net interest margin has remained above 4%, which speaks to the resilience of our core business even in a low inflation and normalizing interest rate environment.

This advantage is structural and reflects the strength of our funding base, our lending mix and our ability to generate consistent spreads through market cycles. While the first quarter net interest margin of 4.1% reflects lower inflation-linked income, our full year guidance of 4.6% is supported by higher expected inflation over the coming quarters. Please turn to Slide 14 to review the performance of our net fee income this quarter. Fees made another solid contribution to our results, growing 6.9% year-on-year, supported mainly by transactional services and mutual funds. The 9.2% increase in transactional service fees was mainly driven by 2 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 preapproved product offers for credit cards, loans, digital checking accounts, investment and insurance products at marginal cost compared to new customer acquisition, making fee generation increasingly efficient. Mutual fund fees also remained an important contributor posting a 6.7% year-on-year growth, mainly supported by an 8.7% increase in assets under management. In an environment of lower short-term interest rates and higher volatility, our subsidiary continued to adapt its product offering to satisfy investor demand.

Stock brokerage delivered a strong year-on-year growth 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 -- over average interest-earning assets, where we continue to post strong levels, as shown on the right of this slide with a ratio of 1.4%.

Supporting this, a Net Promoter Score ratio of 78%, which is the highest in the industry, which translates directly into deeper product penetration and stronger cross-selling across our customer base. Please turn to Slide 15, where we will review our credit loss expenses for the quarter. Expected credit loss expenses reached 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, but in line with our full year guidance of 1.1% to 1.2%.

On a sequential basis, however, cost of risk remained relatively flat. It's important to highlight some key movements that led to this annual rise. The first quarter of 2025 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 NPL stood at 1.6%, mortgages at 1.5% and consumer loans at 1.9%, all showing sequential improvement. 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, reflecting continued cost discipline and consistent execution of our productivity and efficiency agenda. This is the result of a multiyear 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 and digital capabilities and organizational initiatives, including virtual servicing models, which now cover around 20% of the retail clients, digital enhancements that supported 16% year-on-year increase in consumer loan originations and at the same time, disciplined cost execution led to a 0.4% annual decline in personnel expenses and a 4% annual reduction in the branch network from 224 to 215 locations.

Breaking this down, during the first quarter, expenses increased 2.5% year-on-year in nominal terms. This was mainly driven by an increase in administrative expenses associated with higher IT services costs, including cloud software licensing and IT support in line with our digital strategy and higher marketing expenses related to the launch of new services at Banchile Pagos. Personnel expenses declined slightly by 0.4% year-on-year, driven by a reduction in severance payments, partially offset by higher staff benefits, reflecting the cumulative effect of inflation on salaries. The chart on the bottom right highlights our consistent efficiency track record with levels well below pre-pandemic figures, reaching 38.4% in the first quarter of 2026, 763 basis points below the industry average of 46.1%.

Looking ahead, we'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.

And finally, on capital, we 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 with superior asset quality and a robust capital position that will allow us to capture opportunities as the economy gains momentum.

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

[Operator Instructions] Okay. We have our first voice question from Diego Marquez from JPMorgan.

Just a quick one regarding higher inflation. So you slightly increased your ROE guidance, but kept your loan guidance unchanged. So just wanted to see if we could see any further upside to the loan growth given higher inflation and maintaining your 7% guidance? And in which segments we could see the most upside?

And then an additional question regarding potentially higher ROE than given inflation above this 21.5% to 22.5% that you guided.

Thank you very much for the 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 well as the situation in the rest of the world, the geopolitical conflict tend to be more normalized, right? So 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 going to have higher inflation in the second quarter of this year. Probably the inflation -- the total inflation in the second quarter will be between 2.7%, 2.8%.

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

So in terms of loan growth, in nominal terms, we're seeing similar levels as we mentioned in the first quarter -- sorry, the fourth quarter of last year in that call. But in terms of real growth, it's slightly down because of everything that you know that is happening in the global economy and how that's affecting all the countries and Chile since it's an open economy is also affected. So in nominal terms, we're seeing a similar level of loan growth. In real terms, it's slightly below. And this should be affecting overall the loan portfolio. But again, we're not seeing that change in the nominal figure.

In terms of ROE, what we said in the guidance was around 21% to 22%. And that level of ROE is in line with this higher expectation of slightly higher inflation for the year-end. Obviously, these numbers can change depending on how the impacts of this more difficult situation is arising in terms of the global trends and how that affects our bottom line. So there can be changes based on new news from these events.

So we'll now move to the next question, that comes from Neha Agarwala from HSBC.

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? And could that lead to maybe an extraordinary payout of dividends or an increase in the dividends in the near term?

Neha, this is Rodrigo Aravena. Thank you very much for this question. In our baseline scenario, we are not expecting changes in the interest rates in the -- from the 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 inflation rate of 3% over the next 2 years. So given that we're expecting only a temporary impact of inflation, and we maintain our forecast for the inflation rate of 3% over the next 2 years. And also considering that the current inflation rate -- sorry, interest rate, which is 4.5% is not expansionary. The Central Bank has room to continue waiting for the new developments and inflation. So there is room to continue maintaining the interest rate at the current level. Obviously, if the inflation rate were higher in the case that, for example, the oil price continue hovering around $100 per barrel, for example, in that case, we would have an interest rate hike in the future. But so far, it's not our baseline scenario.

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

Thank you, Pablo. 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 would make the process also easier in the future.

However, this is a topic we are working on. And as we pursue to be one of the first in the queue for the application validation process, although it's still too early to define the expected impact of the use of internal models on our capital ratios. We certainly expect to capture some benefit considering the regulation, but there is still a lot of pieces of information that need to be clarified.

[Operator Instructions]

Our next question comes from Daniel Mora from CrediCorp Capital.

I have just one question. Considering that you expect that inflation should be between 2.7%, 2.8% in the second quarter, how high could be the impact on NIM and also on ROE in that particular quarter?

I think it's very important, as I mentioned, that in terms of an analysis by quarter, it's challenging to analyze since it's very volatile, the levels of inflation during the year. So as I mentioned, for net interest margin, the change is around 20 basis points. So with that, you have an effect of around 50 basis points higher in net interest margins, and we'd have a benefit in the bottom line. But 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. So this is a quick spike up, but it comes down very quickly to reach a level of inflation of 4% versus 3%. So that's the reason why we increased the level of ROEs for the year-end, also because of the higher expectations of inflation, not including any other onetime events that could occur during the year.

Sorry, just to clarify, the estimate of 2.5%, 2.8% of inflation is estimate of variation of the [ work ] rather than the CPI of that period, just to clarify.

[Operator Instructions] Okay. It looks like we have no further questions. So I'll pass the line back to the team for their closing remarks.

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

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

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.

Good afternoon, and welcome to Banco de Chile's Third Quarter 202 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.

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, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the third quarter of this year. We are pleased to report that Banco de Chile has once again delivered strong results, reaffirming our solid market position. Our performance this quarter reflects not only robust financial outcomes, but also meaningful progress in a strategic initiative that strengthens our long-term competitiveness.

Key highlights for the quarter include net income as of September 2025 reached CLP 927 million, representing a year-on-year growth of 1.9% that resulted in an ROAC of 22.3%. These results were driven by strong customer income, fund asset quality and ongoing efficiency improvements. These achievements are particularly significant given the challenging macroeconomic and political environment marked by subdued loan growth, especially among corporations.

In times of uncertainty, solid fundamentals and proven risk management become critical differentiators. Banco de Chile continues to stand out among peers in asset quality, additional provisions and capital strength, providing resilience and a solid basis for the future. Let's now turn to the macroeconomic context.

Please refer to Slide #3. Consistent with the trend observed in previous quarters, the Chilean economy continues to show signs of recovery, particularly in consumption and investments. As illustrated in the graph on the left, GDP growth has maintained an upward trajectory since the second half of 2024, supported by a notable rebound in domestic demand.

In the second quarter of this year, GDP expanded by 3.1% year-on-year, remaining above the estimated long-term potential growth rate of around 2%, which resulted in a 2.8% year-on-year expansion in the first half of this year. It is worth noting that this acceleration occurred despite a moderation in external demand. Export growth slowed to 5.4% year-on-year in the second quarter, down from 10.5% in the previous quarter.

This reflects the trends of domestic demand, which improved significantly from 1.6% year-on-year in the first quarter to 5.8% year-on-year in the second quarter. A key driver behind this performance was the sharp increase in investment, particularly in machinery and equipment, which surged by 11.4% year-on-year during the period.

These indicators confirm that the positive trend in domestic demand has persisted into the second half of this year. As shown in the chart on the upper right, imports have accelerated in recent months, driven by stronger domestic expenditure, particularly investments, evident in the sharp increase in capital goods imports.

Furthermore, weighted investments for the next 5 years according to the corporation of capital goods rose by 19% in the second quarter, reflecting a substantial expansion in the pipeline of new projects across the mining and energy sectors as illustrated in the chart on the bottom right. All these figures would result in improved economic performance over the next period while positively impacting loan growth and banking activity.

Please go to Slide #4 to analyze inflation and interest rate evolution. Inflation remains above the Central Bank target at the chart on the left displays. In September, headline inflation increased to 4.4% from 4.1% in June. The measure that excludes volatile items was relatively stable, rising just 10 basis points to 3.9% in the same period. This suggests inflation is still driven by volatile items such as energy, which increased 11.4% year-on-year in September.

In response, the Central Bank maintained the interest rate at 4.75% in the monetary policy meeting held in October. According to the statement released after the meeting, the persistence of some inflationary risk and the slight improvement of macro conditions require more information before continuing to reduce the interest rate towards neutral levels.

Despite this decision, it's important to mention that the Central Bank of Chile has already reduced the interest rate by 650 basis points from the peak of 11.25% reached in 2023, positioning it among the most proactive central banks in terms of monetary easing. The Chilean peso has remained volatile, hovering around CLP 150 per dollar in recent months. However, as shown in the bottom right chart, the U.S. dollar measured by the DXY index has globally weakened this year, a trend not yet reflected in the local exchange rate, partly due to faster pace of interest rate cuts. Now I'd like to present our base scenario for this year.

Please go to Slide #5. We have revised our GDP forecast up for 2025 from 2.3% in the previous call to 2.5% now. This adjustment is due to stronger-than-expected growth in domestic demand and improvement in some leading indicators, as mentioned earlier. As a result, the economy will likely achieve a similar expansion as compared to 2024 despite weaker global activity, which is expected to reduce the export pace of growth.

However, the better outlook for domestic demand has offset this external drag. This scenario is consistent with a gradual decline in hyperinflation to 3.9% by December 2025, assuming no relevant shocks or significant depreciation of the Chilean peso in the coming months. Under this condition, we expect the Central Bank will likely cut the monetary policy interest rate once more in the fourth quarter to end the year in 4.5%.

Finally, it's important to reiterate the unusually high level of uncertainty we face, particularly from global factors. Domestically, attention will also be focused on the upcoming presidential and parliamentary election scheduled for November and the presidential runoff expected in December 2025. Before reviewing the bank's results in detail, let's take a brief look at industry trends.

As shown in the chart on the top left, the banking industry delivered another solid quarter. Net income reached CLP 1.3 trillion and the return on average equity stood at 14.7%. While below the previous quarter, this figure confirmed the central ability to sustain healthy profitability despite lower inflation. This performance reflects the resilience of core banking activity, particularly concentrated in commercial banking after a long period that was dominated by the extraordinary revenues coming from treasury activities on the ground of extremely high levels of inflation and higher-than-normal interest rate, among others.

Turning to asset quality. The chart on the top right shows that nonperforming loans remain relatively stable for the industry at 2.5% with a coverage ratio of 143%, consistent with recent quarters. Despite a challenging macroeconomic backdrop marked by elevated borrowing costs and labor market pressures, banks have managed to keep delinquency under control while maintaining prudent provisioning and strong buffers to absorb potential increases in credit risk.

On the credit side, the bottom left chart highlights that the loan-to-GDP ratio stood at 76% as of September 2025, continuing a below-trend behavior from pre-pandemic highs. This reflects the subdued pace of credit expansion relative to economic activity in recent years. Finally, the bottom right chart further illustrated the persistent weakness in real loan growth across all segments.

Since December 2019, total loans have contracted 2.3% with consumer lending showing the sharpest decline of 18%, followed by commercial loans at 9.5%. This slow demand for credit has been driven by, firstly, by liquidity surplus caused by pension fund withdrawal in 2021, 2022, which was after followed by high interest rates, increased inflation and cautious corporate borrowing amid economic and political uncertainty and persistent labor market challenges more recently.

In summary, while profitability and asset quality remains strong, lending activity continues to lag. Looking ahead, a gradual recovery in loan growth could materialize as uncertainty eases, particularly regarding external risk and in the local front, the outcome of upcoming presidential and parliamentary election, together with revised approval procedures for large-scale investment projects, allowing the industry to return closer to historical GDP multiples.

Next, Pablo will share information regarding Banco de Chile developments and financial results.

Thank you, Rodrigo. Let's turn to Slide 8, which brings our strategy and ambitions into focus. It's our road map for growth and leadership. The core of our strategy is guided by a well-defined purpose, which is to contribute to the progress of Chile, its people and its companies.

Supporting this are our guiding principles that shape how we operate in the medium term, efficiency, collaboration and a customer-first mindset and a focus on creating value in the areas we compete. These elements ensure our agility, innovation and long-term sustainability. On the right, our midterm targets show where we're heading. industry-leading profitability, market leadership in lending and local currency deposits, superior service quality as reflected by a top Net Promoter Score and a strong corporate reputation among the top 3 companies in Chile.

We're also committed to efficiency, which translates into a cost-to-income ratio that must remain below 42%, driven by digital transformation and continuous improvements in technology and operational processes. In short, this strategy enables us to deliver sustainable growth and create lasting value for all of our stakeholders.

Please move to Slide 9, where we will go over our key business achievements. In the third quarter of 2025, we continued advancing initiatives that strengthen our position as a more efficient digital and sustainable institution. A major milestone this quarter was the successful integration of our former collection services subsidiary, SOCOFIN, into the bank's operations.

This merger was completed without affecting productivity metrics for the collection of overdue loans and has generated important cost and operational synergies that have translated into increased efficiency and enhanced customer experience.

Productivity also continued to rise in the third quarter of 2025, driven by technological innovation and digital solutions. In consumer loan originations, executives increased productivity by 13% in the number of operations and 11% in the amounts sold compared to the same period last year. These results highlight the positive impact of our digital transformation on overall performance. We also worked to optimize our physical branch network and strengthen customer service.

Through branch efficiencies, we aim to keep our service line aligned with clients' evolving needs while improving efficiency and delivering a better experience. On the digital front, we expanded the use of AI virtual assistants for both customers and employees. FANi, our chatbot now supports all FAN accounts, including SMEs through the FAN and Print the Plan.

Additionally, we introduced AI tools to assist staff with internal processes, boosting productivity and service quality. To deepen partnerships with businesses, we launched the API store, a platform that enables secure technological integration with corporate clients. This initiative allows companies to automate operations directly with our financial services, adding value to our offerings.

In line with this is our sustainability commitment. We introduced a training plan to promote responsible supplier management. As part of this effort, we are developing educational capsules to inform suppliers about our revised purchasing procedures and encourage best practices within their organizations.

Another highlight of this quarter was the 4270 project, an unprecedented audiovisual initiative that captured Chile's 4,270 kilometers from north to south through a 90-day drone journey. By documenting the country's diverse landscapes, traditions and cultural richness, this project aims to strengthen national identity and reconnect Chileans with their shared heritage. Beyond its artistic value, this initiative reinforces our brand positioning by associating Banco de Chile with pride, unity and long-term commitment to the country.

The project was conceived as a gift to Chile, offering more than 500 royalty-free high-quality images for education and cultural use and has earned international recognition, including a Gold Lion at the Cannes Festival and the showcase at Expo Osaka 2025.

Finally, our customer-focused strategy continues to deliver solid results. For the third year in a row, we ranked first in customer satisfaction at the Procalidad Awards, and we were honored as the best of the best among large financial institutions, the only bank to achieve this distinction. These recognitions confirm the success of our strategy and their commitment to serving clients with excellence.

Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the third quarter of 2025, posting a net income of CLP 293 billion, equivalent to a return on average capital of 22.4%, as shown on the chart and table to the left. This represents a net income increase of 1.7% compared to the same period last year despite a sequential decline from the previous quarter, reflecting the impact of lower inflation on margins.

It's important to highlight that we outperformed our peers in both net income market share and return on average assets, as illustrated on the charts to the right. Specifically, as of September 2025, our market share in net income reached 22%, well above the closest -- our closest competitors and our return on average assets stood at 2.3%, maintaining a wide gap over peers.

These results underscore our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income-generating capacity, particularly centered on customer income, which has continued to grow steadily and enabled us to deal with the expected normalization of key market factors. Our strategy remains firmly oriented towards building a sustainable and profitable bank, and we continue to aspire to be the industry benchmark in profitability.

Let's take a closer look at the operating income performance on the next Slide 12. We continue to demonstrate the strongest operating revenue-generating capacity in the local industry, reaffirming the resilience of our superior business model through different market cycles. As shown on the chart to the left, operating revenues totaled CLP 736 billion in the third quarter of 2025, representing a 2.1% increase year-on-year despite a backdrop of subdued business activity and the effect of lower inflation on treasury revenues.

This performance was supported by solid customer income of CLP 630 billion, which grew 5.4% year-on-year, while noncustomer income amounted to CLP 105 billion, reflecting a 14.1% decline compared to the same quarter last year. The contraction in noncustomer income was mainly explained by lower inflation-related revenues from the management of our structural UF net asset exposure that hedges our equity from changes in inflation as UF variation dropped to 0.6% this quarter from 0.9% recorded in the same quarter last year.

To a lesser extent, revenues coming from the management of our trading and debt securities portfolios also recorded a slight decrease year-on-year due to both lower market mark-to-market revenues due to unfavorable changes in interest rates and a decrease in revenues coming from the management of our intraday FX position.

In turn, customer income has continued to grow, supported by a robust performance in income from loans and net fees, which helped offset the pressure from lower inflation-related revenues. Within loans, better lending spreads and growth in average balances drove income generation, particularly concentrated in consumer and commercial loans as our loan book has continued to return to more normalized margins to the extent FOGAPE loans keep on amortizing.

Furthermore, net fee income expanded by 10% compared to the third quarter of 2024, led by mutual fund management fees, which increased 19% and transactional services up 6%, together with increased contributions from insurance and stock brokerage fees due to improved cross-selling and credit-related insurance and the participation of our stock brokerage subsidiary in a couple of important transactions carried out in the local capital market this quarter.

This performance highlights the strength of our diversified revenue base beyond traditional lending activities. As a result, our net interest margin stood at 4.65% for the 9-month period ended September 30, 2025, maintaining a clear market-leading position in the industry despite margin compression caused by inflation and the financial environment marked by lower interest rates.

Furthermore, our fee margin as a percentage of interest-earning assets reached 1.3%, which enabled us to further drive our operating margin to the level of 6.4%, well above the industry average and our main peers, demonstrating the effectiveness of our strategy and our ability to consistently deliver value to our customers and shareholders regardless of prevailing economic conditions.

Please turn to Slide 13, where we will review the evolution of our loan portfolio. As shown on the left, total loans reached CLP 39.6 trillion as of September 2025, representing a 3.7% year-on-year increase and a 0.6% sequential growth. This expansion remains contained and continues to reflect subdued credit dynamics across the industry, consistent with the Central Bank's latest credit survey, which indicates that overall demand and supply conditions remain stable, although noticing some signs of recovery in certain segments.

Breaking this down by product, mortgage loans grew 7.3% year-on-year, well above inflation, supported by stronger demand through selective origination in middle- and upper-income segments and demand for housing that continues to be driven by demographic issues rather than economic cycle.

Consumer loans increased 3.7% year-on-year amid cautious borrowing behavior and interest rates that remain above neutral levels as well as the profile of our customers characterized by liquidity levels above our peers would partly explain our performance in consumer loans.

While loan growth in this lending family has been slower than the industry, it's important to note that our strategic focus continues to be centered into the higher income segments, avoiding aggressive expansion into lower income markets targeted by some market players, which explains an overall loss in market share that, however, is consistent with our long-term strategic view.

Regarding commercial loans, we posted a 1.3% year-on-year increase in September 2025, constrained by weak investment and uncertainty. However, we'd like to emphasize that we are seeing some early signs of recovery, particularly in the SMEs and certain wholesale banking units, such as the large companies area, which is consistent with higher-than-expected capital expenditures in some industries earlier this year as reported by the Central Bank and national accounts.

On the right side of this slide, you can see that retail banking continues to be the main commercial focus by accounting for 66% of total loans with personal banking representing 52% of the whole book. Accordingly, wholesale loans represent 34% of our book and is split between corporate clients, representing 20% and large companies, representing 14%. When looking at the loan growth by segment, we can see some interesting trends.

Personal banking expanded 5.8%, driven by mortgage loans, while SMEs and large company segment have also posted positive year-on-year growth levels of 4.8% and 7.1%, both above 12-month inflation. SME loan expansion was supported by demand from non-FOGAPE loans that continues to grow steadily by expanding 8% year-on-year, while the large companies banking unit has managed to grow positively for the third quarter in a row on the grounds of commercial leasing and trade finance loans.

Corporate loans, however, contracted 4.3% year-on-year, reflecting lagged investment activity and selective credit demand among corporations, which is highly aligned with findings released by the Central Bank in the last quarterly credit survey. It's important to note that our loan growth remains slightly below the 12-month inflation, and we have experienced a minor decline in overall market share over the last year, mainly due to competitors expanding into segments outside our strategic scope and the countercyclical role played by the state-owned bank BancoEstado.

Positively, we gained share in mortgage loans, thanks to our competitive funding and strong customer relationships. Overall, our portfolio remains well diversified and positioned to capture opportunities as business sentiment improves, interest rates continue to converge to neutral levels and the domestic demand strengthens.

Slide 14 highlights our strong balance sheet mix supported by long-term financial stability. As shown on the chart to the left, loans represented 71.4% of total assets as of September 2025, while our securities portfolio reached 12.5% of total assets, up 54% from a year earlier. The increase in our securities portfolio was primarily driven by the funding strategy carried out by our treasury in the third quarter, which resulted in long-term bond placements aimed at replacing upcoming amortizations, reducing term spread and currency mismatches in the banking book and supporting future loan growth.

In the short run, part of this funding has been invested in high-quality fixed income securities, which has translated into improved liquidity metrics over the last couple of months. In this regard, our securities portfolio is mainly composed of securities issued by the Chilean Central Bank and government, which accounted for 65% of the total amount, followed by local bank instruments, mostly certificates of deposits, representing 28%.

As a percentage of total assets, available-for-sale securities represented 5.9%, trading securities amounted to 5.8%, while held-to-maturity represented only 0.8% of total assets, all as of September 30, 2025. On the funding side, deposits remain our main source of financing, representing 53.1% of the total assets with demand deposits accounting for 25.8% and time deposits representing 27%.

Given these figures, our noninterest-bearing demand deposits fund 36% of our loan book, which is a key competitive advantage that supports our leading net interest margin, as shown on the chart on the top right. More importantly, our deposit base is highly concentrated in retail banking counterparties, which provide us with more stable sources of funding over time.

Regarding debt issued, it increased significantly during the third quarter of 2025, rising from 19% of our total liabilities in the third quarter of 2024 to 20% in the third quarter of 2025 as a result of recent placements. This growth was mainly driven by senior bond issuances in the local market, particularly this quarter, which added CLP 1.6 trillion to our former balances, representing a year-on-year increase of 16%.

Prior to this quarter, long-term bond placements had primarily been focused on replacing scheduled maturities of previously issued bonds. However, beginning this quarter of 2025, we reassessed our funding strategy in light of the gradual rebound expected for lending activity, particularly in longer-term loans.

Similarly, the gradual convergence of key market factors such as the monetary policy rate and inflation towards neutral levels significantly reduces the opportunity to benefit from temporary balance sheet mismatches. With this outlook in mind, during this quarter, we carried out several placements of bonds in the local market for an amount of CLP 1.1 trillion with an average interest rate of approximately 3% and an average maturity of 11.1 years and a 5-year bond denominated in Mexican pesos equivalent to CLP 50 billion, bearing an interest rate of 9.75% in Mexican currency.

Together with raising long-term funding for future loan growth, these bond issuances also allowed us to reduce our structural UF gap from the peak of CLP 9.7 trillion in March 2025 to CLP 8.3 trillion in September 2025, implying a sensitivity of roughly CLP 83 billion in net interest income for every 1% change in inflation.

This is aligned with our revised view on inflation that does not significantly differ from the market ones. The placement of long-term bonds also had a positive effect on interest rate mismatches in the banking book as bonds issued were mostly denominated in U.S. with tenures above 10 years, which closed the gap generated by steady growth in residential mortgage loans.

As a result, regulatory and internal rate risk in the banking book metrics for short- and long-term rate risk posted a significant sequential decrease of around 20% Furthermore, our liquidity ratios remained well above the regulatory requirements with an LCR of 207% and NSFR of 120%, both well above the prevailing regulatory thresholds of 100% and 90%, respectively, reflecting prudent liquidity management and the positive impact of recent bond placements on this matter.

Please turn to Slide 15 for our capital position. As illustrated, Banco de Chile continues to demonstrate a strong capital foundation, comfortably above regulatory thresholds and peer averages. Our CET1 ratio reached 14.2%, reflecting our leadership in the industry. When including Tier 2 instruments, our total Basel III capital ratio stood at 18%, providing wide room to support organic and inorganic growth initiatives and absorb potential market volatility.

The solid capital position reflects a disciplined approach to profitability and sustained earnings retention over recent years. Additionally, the modest loan growth has also contributed to maintaining positive capital gaps. Our capital strategy was designed to navigate the final stages of Basel III implementation while preserving flexibility for both organic expansion and potential strategic opportunities.

It's worth highlighting that Chile operates under one of the most demanding regulatory environments globally, characterized by higher risk-weighted asset density as compared to jurisdictions where internal models play a significant role. In fact, risk-weighted asset calculations under Basel III in Chile resemble those under the formal Basel I framework.

Furthermore, local regulations impose capital requirements similar to those in markets with lower risk-weighted asset densities, including systemic surcharges, Pillar 2 charges and the conservation and countercyclical buffers, all working together and on a fully loaded basis. Despite these stringent conditions, Banco de Chile consistently exceeds all capital requirements, underscoring once again the resilience and the strength of our business and balance sheet by delivering a unique combination of lower risk and higher capital and outpacing in profitability.

Please turn to Slide 16 to review our asset quality. We continue to set the benchmark in asset quality, supported by disciplined risk management and a conservative provisioning framework. In the third quarter, expected credit losses only reached CLP 80 billion, marking a sequential decline and reinforcing the positive trend we saw during the year.

Despite the year-on-year figure remained almost unchanged, there were notable shifts in the composition of expected credit losses. Specifically, the Wholesale Banking segment recorded a net provision release of CLP 18 billion, mainly driven by a comparison base effect following the deterioration of asset quality of certain customers belonging to the real estate construction and financial services industries during the third quarter of 2024 as well as an improvement in the credit profile of a manufacturing client this quarter.

Conversely, the Retail Banking segment posted a year-on-year increase of CLP 4 billion in risk expenses, primarily due to higher level of overdue loans above 30 days when compared to the same quarter last year. These movements were largely offset by a rise of CLP 5 billion of impairment of financial assets explained by a comparison base effect related to lower probabilities of default for fixed income securities issued by local financial institutions in the third quarter last year, a loan growth effect of CLP 5 billion, driven by a 4.2% year-on-year increase in average loan balances, mainly fostered by residential mortgages and a year-on-year increase of CLP 2 billion in provisions for cross-border loans.

Mostly driven by a comparison base effect associated with the lower exposures to offshore banking counterparties and Chilean peso appreciation of 4.7% in the third quarter of 2024. As a result, this performance translated into a cost of risk of 0.8% in the third quarter of 2025, which remains below our historical average and highlights the resilience of our diversified loan portfolio amid a still-adjusting credit cycle.

Nonperforming loans across the industry remained above pre-pandemic levels, as shown in the top right chart. Our delinquency ratio stood at 1.6%, significantly below peers. This gap underscores the strength of our underwriting standards and the proactive risk management. From a forward-looking perspective, despite fluctuations observed in 2025, we believe that the delinquency indicators will continue to converge to historical levels in both retail and wholesale banking segments.

Now in terms of coverage, we maintain the highest ratio in the industry. As of September, total provisions amounted to CLP 1.5 trillion, including CLP 821 billion in specific credit risk allowances and CLP 631 billion in additional provisions. As a result, our total coverage ratio stands at 234%, positioning us with the highest coverage among peers. In summary, our strong asset quality metrics, exceptional coverage levels and prudent risk practices continue to differentiate Banco de Chile and position us to navigate evolving credit conditions with confidence.

Please turn to Slide 17. Operating expenses totaled CLP 276 billion this quarter, representing a modest increase of 1.2% when compared to the third quarter of 2024. This growth remains well below the UF variation rate of 4.2% over the last 12 months, highlighting our disciplined approach to cost management.

The contained increase reflects our continued efforts to optimize resources and drive efficiency through strategic initiatives and diverse digital transformation projects across the organization. The top chart provides a detailed breakdown of the annual variation expenses. Personnel expenses decreased by 1%, supported by headcount optimization of 5.7% over the last 12 months, which helped offset inflationary pressures on salaries.

On the other hand, administration expenses rose by 5.3%, mainly due to higher marketing expenses linked to sponsorship activities aligned with our commercial strategy, increased IT-related costs and to a lesser extent, higher ATM rental costs due to relocations of part of our network. As shown on the chart on the bottom right, our efficiency ratio reached 36.8% for the 9-month period ended September 30, 2025, which significantly outperforms historical levels and competes closely with the market leader in this indicator. This achievement underscores the effectiveness of our ongoing productivity initiatives, which should provide further efficiency gains in the future.

Looking ahead, we remain confident that our strong cost discipline, branch optimization efforts and continued investment in technology will allow us to sustain this positive trend. Please turn to Slide 18. Before we conclude, I want to highlight a few ideas presented in this call. First, we have adjusted our GDP forecast for 2025 to 2.5%, up from 2.3%, reflecting a more positive outlook for the Chilean economy.

Chile continues to stand out for its strong macro fundamentals, a resilient financial system and a credible policy framework, making it a reliable destination for long-term investment even amid global uncertainty. Second, Banco de Chile remains the clear leader in profitability and capital strength. As shown on the left, we delivered CLP 927 billion in net income with a CET1 ratio of 14.2% and a return on average assets of 2.3%, significantly ahead of our peers.

These achievements reinforce our ability to combine strong earnings with robust capital levels. Third, we have revised our guidance for the full year 2025. We expect our return on average capital to be around 22.5%, efficiency near 37% and cost of risk close to 0.9%. These metrics reflect our disciplined approach to both risk management and operational efficiency.

Finally, we're confident in our capacity to remain the most profitable bank in Chile over the long term, supported by a strong customer base, solid asset quality and sound capital levels. Thank you. And if you have any questions, we'd be happy to answer them.

[Operator Instructions] So our first question is from Daniel Vaz from Banco Safra.

I just want to touch base on your midterm targets. I think the only thing a little bit more distance that we see is the top 1 market share for commercial loans and consumer loans, and we see some stable market shares like in the past few months when we look at the big tables.

Just wondering, you're a bank that focused a lot on profitability and focus on maintaining the discipline of the underwriting process. Trying to understand how are you going to tackle this top 1 commercial loans and consumer loans going forward, especially considering that the Chilean market is probably going to a better outlook for commercial loans.

We see a little bit more appetite for consumer as well. So how exactly you're going to tackle this first position on both market shares? Like is going to the same clients or going to a more attractive position versus your competitors to still clients or any other things that you would highlight?

Daniel, thanks for the question. Maybe Rodrigo will start on the first part there.

Perfect. Well, thank you very much for the question. Today, we have a more positive view of the Chilean economy in the future. Even though the economic growth expected for this year, which is around 2.3%, 2.5% and probably in the next year, the economic growth will be similar.

It's very important to pay attention to the composition of the growth because, for example, in the last year, when the economy grew by 2.6%, we have to remember that the key driver were exports, which are not very relevant as a driver for loan growth, for example, right? More recently, we have seen some positive signs for investment including the acceleration for capital good imports and also the pipeline of expected projects for the next 5 years is also improving a lot, especially in the last quarter.

In terms of consumption, we see that the lower trend for inflation is also a positive news for the perspective for consumption as well. So at the end of the day, in our baseline scenario, we're going to have a more dynamic domestic demand, especially on the investment side which will be a positive driver for loan growth in the future. Even though we are not expecting an important acceleration in part of investment because we have to remember that in Chile, between 50% and 55% of investment is related with construction.

That part of investment will likely recover not in the short term, but the 45% remaining of investment, which is related with machinery and equipment today is getting better. So that's why even though we are not expecting important changes in the GDP forecast for the next year, we are expecting a more -- a different composition of growth with a more dynamism in domestic demand, which is a good news for loan growth in the future.

Also, we have to pay attention to the evolution and the final results of elections in Chile. We're going to have election from the President for the Senate for the lower house as well. So at the end of the day, there are important factors that could accelerate or not the economic growth in the future. But I think that so far, the most important aspect to keep in mind is the potential recovery in domestic demand.

So yes, in terms of our midterm targets, these are midterm targets that go beyond not only 2026, but it's a midterm aspiration. And those aspirations, as shown on the slide, we want to be #1 in terms of total commercial loans and consumer loans. So our growth strategy is focused on 3 key ideas.

So the first, and we'll go into each one of these a little bit, is digital transformation as a growth engine for the bank. Also as a second area of focus is focus on the high potential segments, notwithstanding all the entire commercial loan book is interesting for us, but it's been more challenging in this environment.

And third is operational productivity. So in the digital transformation area, what we've been focusing is leveraging technology to scale the efficiency, enhance customer experience and really drive new growth opportunities across the bank in all the segments. So in that regard, what we're seeing is an increase on digital onboarding. Most of transactions are being done online, and we're expanding our digital capabilities in order to capture this new growth through different channels of the bank in order to grow consumer loans in the middle- and upper-income segments.

And we're also implementing the use of AI across the bank in order to improve the service, improve the understanding of our customers and risk management as well. So all of this is improving the customer experience and operational efficiencies and the ability to grow. And in the high potential customer segments or high potential segments, what we're looking to do is to grow and create a larger value creation.

And in that area where we're focused on in commercial loans, especially as SMEs, where we see potential to continue growing in the medium term. We've seen good levels of growth recently, especially if we exclude certain government-guaranteed loans. Consumer loans as well, there's a large area to grow.

If we look at what's happened today versus prior to the pandemic, this segment has decreased its importance in the overall proportion of loans in Chile. So the loans to GDP penetration has come from levels above 90% to around the 75%. And one of the strongest hit not the most important in the total loan book of the industry is consumer loans. So the strongest hit with a lower percentage in the mix is consumer loans that dropped somewhere almost 20%, 18%. So this area, we think will continue to grow once the economy improves, once unemployment reduces, there's better growth in labor across the board. So here is a very interesting area to grow. SME is very interesting because it's also very cyclical in terms of the economy.

So as long as the economy continues to improve, better unemployment, we should see a better activity in these segments and with a better overall view -- business view of Chile, there should be more demand for loans in these 2 segments. And finally, in the large corporate segment, we've seen very little growth, very little demand. But as Rodrigo said, there's a lot of projects in the pipeline with a positive evolution in the future. This should also help drive loan growth for the industry.

Saying that, we're in a very good position to capture this growth in organically or inorganically because we have a huge level of capital that allows us to do this. We don't have any impediments that make us more reluctant to grow and take on growth because we have a very good level of capital in order to do this, and that's the idea of the capital that we have. And finally, operational productivity, which is what we mentioned in the presentation, this helps all the areas improve overall and maintain our profitability high.

Our next question is from Tito Labarta from Goldman Sachs.

Just with the upcoming presidential elections, just kind of curious sort of where you think things stand from here? And depending on which candidates when -- how do you see that potentially impacting the macro-outlook for next year and then also trickling down to the bank's profitability?

Thank you for the question. I'm Rodrigo Aravena. I think that it's very important to be aware that in Chile, we have a political system, which is based on important counterweight between the central government, the Congress, the system, et cetera. So that's why it's not only a matter of who's going to be the next in Chile. We have also take into consideration the future composition of the Congress as well.

According to the surveys, there's going to be a runoff in December, but we're going to have the final results of the Congress in November in the next week. Even though there is uncertainty about the final composition of the Congress and also in terms of who's going to win the election. I think that it's worth mentioning that today, which is an important difference compared to the election that we had 4 years ago, that there are some consensus in Chile between different candidates and different political factors as well.

In terms of put on the table, I would say, 3 important aspects in the policy agenda. First of all, there is a consensus in Chile in terms of the need to improve the long-term sources of economic growth. When we analyze all the different proposals, they are aware about the importance to promote more economic growth mainly investment, especially considering that the external environment will be a bit more challenging in the future.

So we don't have important differences in terms of the diagnosis of the importance of economic growth. Also, today, there are not important proposals with higher tax rates. In fact, there are some proposals that are based on lower corporate tax rate, for example, which is a good news as well for the future. And also, we also have an important consensus in terms of the importance to improve, for example, the licenses and permit system that we have in Chile, which is an important factor to promote investment in the future.

So all in all, today, I, which is the main difference compared to the elections that we had 4 years ago, there are not important differences in terms of proposals for economic growth for taxes, et cetera. So when we consider this scenario and also the recent improvement in some leading indicators, I think that we have good reason to expect a more dynamism in domestic demand in the future, especially in investment and consumption, even though we have uncertainty for the final result of the presidential elections.

And in terms of the bank, the most important result of this is more demand and activity in Chile, which should drive loan growth in all the segments. So in commercial loans, large corporates and multinationals concessions and SMEs, consumer loans, et cetera. So what we've seen is a period of low growth, high interest rates. And now we're moving into a more attractive period with better business confidence, hopefully, better consumer confidence, and that should lead to stronger loan growth, and we have the capital in order to grow. So we don't need more capital. So that means additional points in terms of the bottom line for ROE.

Our next question is from Neha Agarwala from HSBC.

Congratulations on the results. Just a quick one on the outlook for 2026. What kind of pickup should we -- can we expect in the coming quarters in terms of loan growth? And what would be the drivers for earnings for 2026, given that there should be some pressure on the NIMs with easing inflation?

Neha, I think in 2026, well, today, we don't have guidance yet because it's -- we're working on the budget, and it's something that's being discussed internally in the bank. But what we can say is similar to what we've said in the other questions is what we're foreseeing is a better overall aspect of Chile in the next years. And this should allow us to have in the banking industry to have better results in terms of loan growth, the main area, the main driver for growth for us in the following year.

The inflation level, what we expect is to return to levels closer to 3%, somewhere similar in terms of the overnight rate, not too much lower. We're already close to the long-term levels there. So in order to really generate a stronger bottom line over the next years, we should see loan growth is the main driver. So what we have and what's very positive for Banco de Chile is that we have an attractive level of CET1 total base ratio, and this is allowing us to grow when the opportunities arise. And hopefully, that's sooner than later.

And also Neha, this is Rodrigo Gara. Important to mention as well that we are not expecting important changes in interest rate for the next year. Today, it's likely that the Central Bank will reduce interest rate by 25 basis points the next meeting or probably in the first quarter of the next year. Today, the annual inflation is at 3.4%.

So for the next year, it's reasonable to expect a convergence towards the target, which is 3%. So I mean we are not expecting important adjustment in the key factors behind the ROE and NIM as well since we are not seeing important room for adjustment in both interest rate and inflation as well.

[Operator Instructions] Our next question is from Andres Soto from Santander.

My first question is for your loan growth next year, which I will assume you are expecting an acceleration versus 2025. Which segments are you expecting to see faster growth? Is going to be commercial lending in your comments about the third quarter results. You mentioned some market share losses in consumer as other players are focusing in the lower segments of the population.

So I would like to understand what is missing for you guys to take a more optimistic view on consumer lending. You have mentioned in this call, this is a segment that is still depressed compared to the pre-pandemic levels. So what is missing for you to see faster growth in the consumer? And overall, what is going to be the driver in 2026 for the total loan growth?

Well, in terms of loan growth, what we're seeing the main driver, as you know, commercial loans is the largest mix of the portfolio. So -- and what's been most impacted over the last 5, 6 years has been commercial loans as importance in terms of volumes. So in terms of volumes, we should see a recovery in terms of commercial loans.

Within that, we're expecting with better business confidence with more -- less uncertainty, we should see a return of larger corporate demand in Chile. SMEs as well should have a very good activity in this environment with a better global activity in GDP, unemployment, they're much more cyclical, as I mentioned.

And in consumer loans, we should see slowly as we should continue to see slowly that the consumer loans will continue to improve in line with unemployment rates. For what's happened in the consumer loan segment is that some players in Chile have implemented or have focused on the lower income segments where we're not active today, penetrating that market more than us. Probably we have a customer base that's a higher net worth customer base. as well that it's not demanding as much loans. But we continue to grow well.

So in a new environment next year with better business and consumer confidence, we should see more attractive loan growth in this segment, and we're implementing different digital initiatives to understand the customers in order to offer them products to the channels that they desire with business intelligence, much more focused on each customer rather than global plans that are focused over the entire segment. So we're trying to personalize much more of the information that's going to these customers. Next year should be a more positive year overall.

My next question is regarding capital. Your core equity Tier 1 is 400 basis points above all your peers, basically. What level do you guys feel necessary for the growth that you see ahead? And how you imagine the capital normalization of Banco de Chile taking place? How long is going to take place for you to get to a level you see as the adequate level for capital?

Andres, this is Daniel Galarce. From the capital point of view, as we have said, of course, we have today important buffers and favorable gaps over the regulatory limits. Basically, everything depends on how the portfolio will normalize in terms of loan growth in the future. And basically, in which products we will increase and we will expand our portfolio in the future as well.

As Pablo said, we are expecting to grow more in commercial and consumer loans. We want to be leaders in those lending products and those products are more intensive in terms of use of capital, of course. So everything depends on the evolution of loan growth in the future. So probably we will have a normalization in terms of capital buffers probably over the midterm, 3 years or something like that, depending on the economic activity in the country.

And which level will be that?

Well, we don't have any specific target, but in the long run, we will -- we need and our aim is to be always at least 1.5%, 2%, something like that in the range of 1% to 2% above regulatory limits.

We would like to thank everyone for the questions and the participation. I will now hand it back to the Banco de Chile team for the closing remarks.

Thanks for listening, and we look forward to speaking with you for our full-year results next year.

That concludes the call for today. Thank you and have a nice day.

Good afternoon, and welcome to Banco de Chile's Second 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.

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 would now like to turn the call over to Mr. Rodrigo Aravena. Please go ahead.

Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the second quarter of this year. Once again, we are proud of Banco de Chile overall performance during this period since our bank has demonstrated its strong position in the local market by delivering solid results across various areas. As of June 2025, we reported a net income of [CLP 654 billion] that represents a year-to-date growth of 2%, resulting in an ROAE of 21.9%.

As we will discuss later, these outcomes were driven by strong customer income, improved asset quality, increased loan activity in targeted segments and ongoing efforts in cost control and efficiency. As mentioned in previous calls, these results are particularly meaningful given the ongoing challenges and rising uncertainties in the global macroeconomic landscape.

In circumstances like we currently face, solid long-term fundamentals truly standard. In this context, it's worth highlighting the bank's key strengths, including best-in-class asset quality a strong capital base and a robust level of additional provisions. These elements set us apart not only in Chile, but all across the region.

Now I'd like to share a brief analysis of the macroeconomic environment. Please refer to Slide #3. The Chilean economy continues to show signs of recovery. As illustrated in the graph on the left, growth has followed an upward trend since the second half of 2024, beginning the fourth quarter with a 4% expansion. In the first quarter of this year, GDP grew by 2.3% year-on-year still above estimated long-term trend of around 2%. Although this represents a slowdown when compared to the previous quarter, it's important to note the improvement in certain components of domestic demand.

Such as double good consumption up 10.9% year-on-year investment in machinery and equipment up 5.3% year-on-year, as shown in the upper right chart.

Certainly, the strengthening observed in domestic demand could anticipate a better trend for loan growth. Preliminarily, data for the second quarter suggest a similar trajectory, according to the monthly Economic Index IMACEC. The economic expanded by 2.9% in the second quarter and 2.6% in the first half of this year is still above the long-term trend. The breakdown showed that commerce sector was one of the main drivers of this expansion. The labor market continues to show mixed signals.

In June, the unemployment rate stood at 8.9%, up 60 basis points from a year earlier and 20 basis points above the first quarter. This increase was driven by 0.6% year-on-year rise in the labor force, while there were no changes in the number of employed individuals.

As a result, Level 4 participation rate weighted 62%, it still below the pre-pandemic peak of nearly 64%. On a positive note [indiscernible] rose by 3.6% year-on-year, well above the long-term average, providing additional support for private consumption.

Please go to Slide #4 to review inflation and interest rate trends. Inflation has remained above the Central Bank 3% target since late 2020, although it's been trending downward, as shown in the chart on the left. In June, headline annual inflation rate stood at 4.1%, down from 4.9% in March, However, core inflation, which excludes volatile items, remained relatively stable, rising by just 10 basis points to 3.8%.

This evolution suggests that the decline in inflation has been largely driven by volatile components, such as food, which fell from 5.4% in March to 1.9% in June and energy down from 14.2% to 9.9%. The supply index for goods excluding volatile items, was 2.9% in June. Overall, various indicators point to easing inflationary pressures in recent months.

In response, the Central Bank lowered the policy rate by 25 basis points to 4.75% in line with market expectations. The company's statement indicated that further rate cuts are likely this year if the fundamentals continue being consistent with a normally safe inflation towards the 3% target. In this context, the Central Bank suggested that the interest rate is expected to convert towards its neutral level, estimated at around 4% over the coming quarters. The Chilean peso has remained volatile by hovering around CLP 950 per dollar in recent months.

However, as shown in the bottom right chart, the U.S. dollar measured by the DXY Index, which reflects the multilateral value of the dollar against our currency basket has weakened significantly this year. A trend, not yet reflected in the local exchange rate. This decoupling may be influenced by Chilean [faster] pesos of interest rate cuts when compared to other countries.

Now I'd like to present our base scenario for 2025. Please go to Slide #5. We have revised our GDP forecast for 2025 upward. From 2% in the previous call to 2.3% now. This adjustment reflects higher-than-expected growth at the beginning of this year rather than improved prospects. As a result, we anticipate that the economy will grow slightly below the 2.6% recorded last year due to weaker global activity, which is expected to dampen export growth. However, a stronger domestic demand should partly offset this external drag. This scenario should support or rather decline in year-end headline inflation to a level below 4% and assuming no major external shock or significant depreciation of the Chilean peso.

Under these conditions, the Central Bank would lower the monetary policy rate to around 4.25%. Finally, it's important to reiterate the unusually high levels of uncertainty we face particularly regarding downside risk to growth stemming from global factors. Domestically, attention will also be focused on the upcoming precedential and parliamentary elections in November.

Please turn to Slide 6, where we provide an overview of the latest trend in the Chilean banking industry. As shown in the chart on the top left, the industry posted another quarter of good results. Net income grew in CLP 1.4 trillion. This performance translated into a return on average equity of 16.3%. Operating revenues seem to be recovering on the grounds of the resilience of recurrent drivers associated with the lending and deposit activity. After some years marked by a greater prominence of financial-related revenues, given important adjustment in key market drivers, such as inflation, interest rate and the emergency of the FCIC funding.

Regarding as quality, the chart on the top right shows that nonperforming loans have remained stable at 2.4%, with a coverage ratio at 148% in line with recent quarters. These figures suggest that despite a challenging macroeconomic backdrop characterized by increased unemployment and higher-than-normal borrowing cost, banks have managed to maintain delinquency under control while keeping prudent provisioning levels and adequate buffers to absorb potential credit deterioration.

In terms of loan growth, however, as illustrated in the bottom left chart, the loan to EBIT ratio continues to be below trend by reaching 77% as of June 2025. This reflects the subdued pace of credit expansion relative to economic activity registered after the pandemic. This becomes clear in the chart on the bottom right, the persistent weakness in loan growth across all segments in real terms. Since 2019, total loans have contracted with consumer lending showing the carpet decline, followed by the commercial portfolio.

Mortgage loans have showed some resilience but still very weak considering the demand for housing given recent demographic, economic and social changes. This slow demand for loans has been largely constrained by high interest rate cautions corporate borrowing due to uncertainty as well as weak unemployment figures. In summary, while the industry has shown signs of recovery in profitability and maintain solid asset quality, credit activity remains soft.

Nevertheless, as soon as some sources of uncertainty dissipate, such as the potential impact of external risk factors on the local economy and the outcome of the upcoming presidential and parliamentary elections, among other factors, the lending business showed gradually return to long-term GDP multiplies.

Next, Pablo will share information regarding Banco de Chile development and financial results.

Thank you, Rodrigo. Let's review Slide 8, which outlines our strategic framework and aspirations. On the left side of the slide is our strategy, structured around 3 key elements: our purpose, strategic pillars and strategic plan. Our purpose is straightforward to support the development of Chile, its people and its businesses. We achieved this by leveraging our long-standing competitive strength, trust stability and deep relationships across every segment in which we operate.

Our strategic pillars define how we operate with a strong focus on efficiency, collaboration and the customer-first mindset. These principles guide both our short- and long-term decision-making, keeping us aligned with innovation and operational excellence.

Our business scopes are defined as where we will operate and how we will deliver value, making us more agile, competitive and responsive to a constantly evolving environment and to the needs of our clients. Through this strategic framework, we aim to meet our midterm targets as shown on the right-hand side of the slide. We aim to achieve sustainable long-term industry-leading profitability. We are also targeting market leadership in both commercial and consumer loans in the high Net Promoter Score, which reflects the strength of our customer relationships over time.

Additionally, we aspire to rank among the top 3 in corporate reputation in Chile. And on the cost front, we are committed to maintaining a cost-to-income ratio below 42%, reinforcing our focus on operational efficiency and disciplined execution to the development of digital capabilities and the continuous improvement in technological infrastructure.

To summarize, our strategy is centered in long-term sustainability with management incentives aligned with these strategic priorities, ensuring we continue to create value for all of our stakeholders.

Please move to Slide 9, where we will go over our key business achievements. During the first half of this year, we made significant progress on several initiatives aligned with our strategic priorities. On the digital front, we launched multiple enhancements aimed at improving customer experience and supporting commercial activity. These included new authentication tools for individuals and companies, the integration of our payment app into the main banking platform and the rollout of new credit simulators.

In parallel, our fund digital accounts continued to perform strongly, achieving a 30% cross-sell rate to current accounts reinforcing fund's role as a key driver of customer acquisition. To further unlock its potential, we introduced credit cards and micro loans tailored to find users.

In terms of AI adoption, we expanded the capabilities of FANi, our virtual assistant, which now supports queries across all FAN accounts. We also extended the use of AI to internal operations, particularly within the commercial and technology teams contributing to improved productivity. In addition, we continue to execute our efficiency and productivity agenda through targeted initiatives. These include IT cost control measures, such as the renegotiation of licensing agreements and gains in productivity driven by digital sales and technology adoption.

Likewise, we have captured significant value through initiatives aimed at centralizing subsidiary functions, optimizing organizational of structure, reducing infrastructure expenses and redesigning the service model.

In line with this, we recently integrated our debt collection subsidiary called Socofin into the bank's operations, generating synergies and enhancing both operational efficiency and customer experience. In addition, we have made significant progress in the technological transformation process of some of our subsidiaries to continue leading the industry in both the mutual funds and securities brokerage business.

In the sustainability front, we actively participated in the FOGAES state guarantee credit programs aimed at stimulating economic activity through the housing construction and mortgage lending. Furthermore, we issued a $122 million bond in international markets to fund social initiatives with a particular focus on supporting women-led small and medium-sized enterprises. Together, these initiatives reinforce the strategic positioning and strengthen our foundation to capture future growth opportunities.

Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the second quarter of 2025, posting a net income of CLP 305 billion, equivalent to a return on average capital of 23.3% and the return on average equity of 20.5% as shown on the chart and table to the left.

Although these figures represent a slight decrease as compared to the CLP 324 billion recorded the same period last year. Our profitability remains solid. It's important to mention that -- we outperformed our peers in both net income market share and return on average assets as illustrated on the chart to the right.

Specifically, in the first half of the year, our market share net income remained well above our competitors and their return on average assets continue to lead the industry with a very wide gap to our competition as illustrated on the chart. These results reflect our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income generating capacity particularly focused on customer income. Our strategy remains centered in building a sustainable and profitable bank, and we continue to aspire to be the industry's benchmark in profitability.

Let's take a closer look at our operating income performance on the next slide, 12. We continue to demonstrate the strongest operating revenues in the local industry, reaffirming the resilience of our superior business model through market cycles. As shown on the charts to the left, operating income totaled CLP 763 billion in the second quarter of 2025, reflecting a stable performance despite the context of subdued business activity. This figure was composed of a solid customer income of CLP 626 billion, up 2.7% year-on-year and non-customer income of CLP 137 billion which declined as compared to CLP 161 billion recorded in the same period last year. The decrease in non-customer income was primarily attributable to lower inflation revenues on management of our structural U.S. net asset exposure and the maturity of FCIC funding from the Central Bank in July of 2024. These effects were partially offset by increased net revenues from the management of our investment portfolio that benefited from a downward trend in the second quarter of 2025.

Customer income growth was driven by a 6.2% year-on-year increase in net income from loans and the 8.1% annual rise in fee income, which enabled us to offset the decline in the contribution of both demand and time deposits as a consequence of the annual decline in short-term interest rates, which naturally compressed profitability in both products.

The annual rise in income from loans was primarily driven by the consumer loan book due to improved lending spreads and a 3.7% annual increase in average balances. Additionally, commercial loans and residential mortgages contributed to customer income growth, mainly thanks to greater average volumes on an annual basis.

Taking a closer look at commercial loans, the SME portfolio continued to expand 4.8% year-on-year supporting customer income growth as well. Notably, when [indiscernible] FOGAPE loan amortization the portfolio has been gaining momentum by rising 8.1% year-on-year, helping to improve lending spreads in this segment. As a result, our net interest margin reached 4.7% this quarter and 4.8% as of June, maintaining a leading position in the industry.

Fee growth was led by mutual fund management and transactional products. Fee income from mutual fund management rose 23.8% year-on-year driven by a solid 16.6% increase in assets under management. In addition, fees from transactional products were driven by both checking fees that posted an 11.2% year-on-year increase, supported by 4.9% rise in total account holders and fee income from debit accounts growing 6.9% year-on-year, largely fueled by the success of our FAN product, which contributed to an 8.2% increase in the volume of debit card transactions on an annual basis.

In this regard, it's worth noting that our FAN product has been a key driver of current account originations, accounting for approximately 1/3 of all new current account customers. The strong performance in operating revenues translated into an operating margin of 6.6% for the first half of the year. These figures underscore the strength of our business strategy and our ability to consistently deliver value to our premium customer base across both lending and non-lending products regardless of the prevailing economic environment.

Please turn to Slide 13, where we will review the evolution of our loan portfolio. As illustrated on the slide on the left, Total loans reached CLP 39.4 trillion as of June 2025, reflecting an annual increase of 3.9%. This credit expansion continues to reflect subdued business dynamic across the industry lagging the pace of economic activity.

This trend aligns with the Central Bank's latest credit survey, which confirms that overall credit demand remains soft, which, in our view, continues to be the primarily driven by low consumer and business confidence. Breaking it down by segment, mortgage loans grew 8.1% year-over-year, supported by demand from upper income clients.

In particular, the origination in the segment were dynamic, growing 14.1% in the first half of the year compared to the same period last year. Meanwhile, consumer loans rose 4.5% annually amid a cautious borrowing environment and interest rates that remain above historical averages.

As for commercial loans, they posted a moderate increase of only 1% constrained by weak investment and ongoing political uncertainty. When analyzing the real loan growth relative to pre-pandemic levels, distinct patterns emerge compared to the industry. As illustrated on the right of the slide, we've delivered stronger growth in consumer loans, a segment where we aimed in the lead, while maintaining a comparable pace of expansion in commercial loans.

In the mortgage loan segment, the industry has outpaced us, which is consistent with our strategic focus as this is not a segment where we aspire market leadership. It's also important to note that loan volumes remain well below pre-pandemic levels in real terms, indicating room for future faster growth on the grounds of more favorable financial conditions for borrowers, a rebound in domestic demand and a decline in interest rates.

In terms of portfolio composition, our commercial loans remained well diversified across sectors as of June 2025, the largest exposures are in social and personal services, financial services and retail, hotels and restaurants, all representing 45% of the commercial loan portfolio. While the real estate and construction sectors jointly represent only 11%. This distribution reflects our prudent risk management approach and their continued commitment to supporting key sectors of the Chilean economy.

Please turn to Slide 14 to discuss our competitive balance sheet structure. As depicted in the charts on the top left, our assets and liability structure remains solid and aligned with our strategic focus on commercial banking. As of June 2025, loans represented 73.8% of our total assets. Financial instruments in turn, including trading and AFS and held-to-maturity portfolio jointly accounted for almost 12%. And with held-to-maturity assets represented a minor portion of this figure. It's important to highlight that we exchanged bonds denominated in U.S. during the quarter issued by the Chilean government that were close to maturity and formerly booked as held to maturity.

For newly issued bonds, the nominating pesos maturing in 2027. The new bonds were booked as available for sale with changes in market value reflected in equity.

On the liability side, deposits remain our primary source of funding, representing 54.8% of total assets. Within this, time deposits and saving accounts accounted for 28.7%, while demand deposits reached 26.1%. As shown on the chart to the right, our noninterest-bearing demand deposits fund 35.4% of our loan book which represents a significant advantage over our peers in terms of cost of funding. This balance sheet structure continues to be one of the key drivers of our outstanding net interest margin.

Moving to liquidity. Our ratios remain well above regulatory requirements. As of June 2025, our liquidity coverage ratio stood at over 195%, comfortably above the 100% regulatory limit. The liquidity coverage ratio is designed to ensure that banks hold sufficient high quality liquid assets to withstand a 30-day stress scenario.

Accordingly, our current level reflects the strength of our liquidity position. Similarly, our net stable funding ratio reached 117% exceeding the minimum requirement by 27 percentage points. The net stable funding ratio measures the stability of a bank's funding over a 1-year horizon, ensuring that long-term assets are backed by stable funding sources. These figures reflect our prudent liquidity management and strong funding profile.

In addition, our U.S. GAAP reached CLP 9 trillion by the end of June 2025, implying the sensitivity of approximately CLP 90 billion in net interest income for every 1% change in inflation. It's important to recall, this gap is composed of both our structural U.S. position, which serves as an economic hedge against inflation for our equity and directional positions managed by treasury to capitalize on short-term rate differentials between the peso and the U.S.

Given the persistence of inflation above the Central Bank's target range and the view of our treasury on the evolution of key market factors, we increased our inflation index exposures for a period of time. Although this exposure came down in the second quarter of 2025, as inflation expectations seem to be normalized. We firmly believe that income generated from this strategy has effectively offset the associated risks over time, as demonstrated by the market-leading position we have held in terms of profitability over the last years.

Please turn to Slide 15 to review our capital position. As shown on this slide, Banco de Chile continues to maintain a solid capital base, well above the regulatory requirements and our peers. As of June 2025, Our common equity Tier 1 ratio reached 14%, positioning us among the top performers in the industry, including additional Tier 1 and Tier 2, our total Basel III capital ratio stood at 17.8%, significantly above the regulatory minimum and providing a strong capital of slack to support future growth. This robust capital position is the result of a combination of factors, including consistently high profitability and solid earnings retention practices over time.

In addition, our positive capital gaps have also resulted from subdued loan growth. Our strong capital strategy is designed to face regulatory changes stemming from the final phase of Basel III implementation while maintaining enough business flexibility to address both organic and inorganic growth opportunities in the future.

It's also important to note that Chile operates under one of the most stringent regulatory frameworks with higher risk-weighted asset density in comparison with other countries operating under Basel III, where internal models have a key role.

In summary, risk-weighted assets under Basel III in Chile are comparable to those formerly existed in the Basel I framework. On top of that, the local regulations has basically imposed the same capital requirements on the Chilean banking system than those existing countries that present lower risk-weighted asset density, including the systemic and Pillar 2 capital charges together with conservation and countercyclical capital buffers. Despite this, we continue to exceed all capital requirements, underscoring the strength and resilience of our balance sheet.

Please turn to Slide 16 to review our asset quality. Banco de Chile continues to demonstrate leading asset quality, supported by prudent risk management and conservative provisioning strategy. During the second quarter of 2025, Expected credit losses totaled CLP 96 billion, reflecting a 1.5% increase compared to the same period last year.

This figure remains positive, particularly in the context of a still normalizing credit cycle marked by higher-than-normal delinquency in some business segments. This translates into a cost of risk of only 0.98% and which is slightly below our long-term level and stable versus recent quarters, demonstrating the strength of our loan portfolio diversification and effective risk management.

Regarding delinquency, it's important to note that nonperforming loans remained above pre-pandemic levels, as shown in the chart on the top right. This trend is observed across the banking industry. However, past due loans seem to begin with to gradually return to more normal levels as credit conditions continue to ease, particularly in certain lending products, as illustrated in the chart on the bottom right.

In this environment, our delinquency ratio stood at 1.47% in June 2025, which is well below the levels posted by our peers. Looking ahead, we expect to see a gradual improvement in asset quality as economic conditions continue to strengthen across all lending categories.

In terms of provisions, we maintained the strongest coverage level in the industry. As of June 2025, our total provisions amounted to CLP 1.5 trillion, composed of CLP 825 billion in allowances for loan losses and CLP 631 billion in additional provisions which provides a robust buffer to potential credit deterioration. Accordingly, our coverage ratio stands at 252% in June 2025, reflecting a conservative and forward approach forward-looking approach to credit risk management will significantly outpacing our peers. Overall, our strong asset quality metrics, high coverage levels and disciplined risk management continue to differentiate us from peers and position us well to navigate evolving credit conditions.

Please turn to Slide 17. Operating expenses totaled CLP 281 billion in the second quarter of 2025, remaining flat when compared to the first quarter of 2025 and increasing 3% year-over-year. It's important mention this growth remains below the inflation rate that accumulated 4.5% over the past 12 months. The modest increase in operating expenses demonstrate both our ongoing efforts in cost control initiatives. The sustained focus on driving efficiency across the corporation through the adoption of digital solutions.

In the top right chart on the slide, we can see a detailed breakdown of the change in operating expenses between the second quarter of 2024 and the second quarter of 2025. Personnel expenses rose by 0.8%, primarily due to higher severance payments, an increased one-off bonuses following collective bargaining processes conducted during the quarter by 2 of our subsidiaries.

Administrative expenses went up by 4.3% and mainly driven by higher IT-related costs associated with enhancements to our IT infrastructure, internal initiatives aimed at boosting operational efficiency and marketing expenses due to sponsorships online with our commercial strategy.

As shown on the chart at the bottom right, our efficiency level reached 36.4% this quarter, a notable achievement driven by a sustained focus on productivity across the organization which has significantly improved efficiency compared to pre-pandemic levels that averaged nearly 45%.

Looking ahead, we remain confident that our strong cost control branch optimization efforts and ongoing efficiency initiatives will support our midterm target of maintaining efficiency levels below 42%.

Please turn to Slide 18 for key takeaways. On the macroeconomic front, we have raised our GDP forecast for 2025 to 2.3%, up from the 2% projected last quarter. This revision is mainly explained by stronger-than-expected economic performance in the early part of the year. However, it doesn't reflect an improvement in the outlook of the remainder of 2025, given the deterioration in global conditions, particularly rising trade and geopolitical tensions.

As for Banco de Chile, given the solid performance achieved in the first half of the year, we have also updated our baseline scenario for the full year 2025. From a revenue perspective, we expect a net interest margin remain around 4.7% by year-end, supported by an inflation rate measured as a U.S. variation of 3.4%, that remains above the midpoint of the Central Bank's target range and steepened local yield curves as the monetary policy rate continues to decline.

In terms of credit risk, we now forecast an expected credit loss ratio of approximately 1% and for the year, below the 1.1% projected in the prior quarter based on slightly better-than-expected credit charges posted during the first half of the year. We also anticipate a gradual improvement in their past due loan ratio as economic activity gains momentum.

In operating expenses, we continue to benefit from productivity gains and a strong cost control culture. As a result, we have revised our efficiency ratio forecast down to approximately 38% for the full year compared to the 39% previously forecasted. Based on these drivers and the absence of non-recurring factors, we have increased our full year return on average capital estimate to approximately 21%, up from 20% in the prior guidance.

In summary, we remain confident in our ability to continue delivering industry-leading results and to maintain our position as the most profitable and well-capitalized bank in Chile over the long term, as shown on the chart on the left.

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

[Operator Instructions]. So our first question is from Ernesto Gabilondo from Bank of America.

Thanks for the opportunity to take questions. My first question will be on the political landscape. I will appreciate, Rodrigo, if you can give us your two cents on the presidential costs and potential regulation related to taxes, interchange rate and mortgage and there could be potential impacts for Banco de Chile.

My second question will be on NIMs. As you have explained in your presentation for every change of 1% in interest rates, NIM has an impact of around CLP 9 billion. But just wondering, looking beyond this year, how do you see the overnight rate next year? And also, how should we think about NIM next year?

And for my last question is, as you said in terms of the ROE you're expected to be around 21% this year. But I just wanted to double check how are you seeing the ROE for the medium term and what will be the minimum common equity Tier 1 ratio you would like to have under that scenario?

Thank you very much for your question. This is Rodrigo Aravena. Well, on the political scenario and macro concerns, we have different things to consider First of all, I think that it's very important to be aware that according to different surveys, it's very likely that there will be a second round in Chile, which will be by the end of this year, since there is not any candidate with more than 50% of votes. And it is very important to remember that in Chile, when there is any candidate with more than 50% of votes. There is a second round, which is scheduled for December of this year.

Even though it's not clear it's going to compete in the runoff. There are some topics where there is a broad consensus in Chile that are very important to put on the table in terms of the discussion of the value policy in Chile for the next presidential term. One of them is related with the dynamic growth, so we have seen a growing concern for different candidates in terms of the need to improve the growth in the future.

It's very important to remember that in Chile, the average economic growth since 2014 until now has been only 2% which is below the average global economic growth. So that's why we've seen some proposals related with lower corporate tax rates. We've seen some different proposals in order to improve, for example, to reduce the [bureaucracy] different to improve as well by system related with environmental licenses and permit.

So what we've seen in general is that there is a consensus in terms to address the different challenges related to growth, employment the fiscal debt as well. And one of the measures that is getting more popular in Chile is the possibility to reduce taxes in the future, but it's important additionally, to be aware that any change related taxes has to be approved by the Congress in both cameras to the Congress. And so that's why it's also important to analyze the result of the parliamentary elections in Chile for the next year.

So when we consider all the valuable information, I mean, the weak here is a global environment in Chile, Chile is a very open economy, as you know, so this is a negative news for Chile. But on the other hand, we've seen more dynamism and the domestic demand in terms of deployment, in terms of investment and durable consumption, for example. So that's why we feel comfortable with the forecast 2.3% for the year and it's reasonable to take the number -- a similar number for the next year.

In terms of the overnight rate, which was your second question or the part of your question, we are expecting lower interest rates in the future. The Central Bank reduced the rate by 25 basis points in the latest monetary policy meeting to 4.75%. Is it reasonable to expect an interest rate of around 4.25% or even 4% at some point of the next year, but it's going to depend on the evolution of the global inflation exchange rates, et cetera.

Of course, these market drivers, market factors will be very important in terms of the final stability ROE of the bank. And Pablo, do you want to go into that.

So in terms of your second question, in terms of net interest margins, what we have today is a level of around 4.8% for net interest margin, obviously, depending on how the inflation level is in the next couple of months. Will depend on the evolution of that figure for the rest of the year and especially for the third quarter. Because as you know, we had negative inflation a couple of months ago.

So that would be an important driver to see how the inflation will be for the rest of this year, where we're expecting a level of inflation slightly above in terms of the U.S. variation above the long-term level target of the Central Bank. And we expect that should continue to move more aligned with the Central Bank in the medium term.

So we have a little bit higher levels of net interest margin today because of about 0.5% more or less, generates, as you mentioned, about CLP 40 billion more in net interest income -- that's equal to around 10 basis points of NIM. And in the medium term, we think a level of NIM, a reasonable level is somewhere around 4.5% to 4.7% as we've said in prior calls.

And obviously, about depends on different factors. It depends on the mix. If we see a recovery in the loan mix, how this recovers, which segments our target segments is consumer loans, SME loans, but we also want to be leaders in commercial corporate banking.

So the evolution will depend on the mix inflation as we just spoke, as well as yield curves. So how the interest rates move in the future today. We're in a much better position than prior to the pandemic, but that will depend on these factors on how the evolution of our net interest margin will evolve in the future.

And if we go into ROEs, our aspiration is to be the leader in the industry. So we think we have all the tools to do this. We've been enhancing all of our digital platforms, improving productivity across the bank, focus on growing in the most attractive segments in the industry. So this should allow us to maintain a very attractive return on assets and also return on total equity, return on average capital.

It's also important to note that when we calculate the traditional calculation of return on average equity, return on average capital. We tend not include the AT1 bonds. It's important to remember that the AT1 bonds. The interest rates of these bonds is actually recorded in retained earnings and not in net interest expense, as you would see or in the profit and loss as you would see normally of any other bonds.

So -- actually by admitting issuing AT1. We can actually see that the capital is retained earnings is coming down, so that actually helps ROE. So today, we don't have AT1. So this is something to take into consideration when comparing us to other banks in the industry or globally.

And in terms of the capital adequacy ratios, your question we'll pass that to Daniel Galarce.

This is Daniel Galarce. As you probably know, our CET1 ratio is 4% or 5% above regulatory limits today. And this is basically due to the subdued economic growth, of course, and also the excellent financial result we have achieved this year. By the end of the year, we also expect to maintain the current levels of capital adequacy ratios by the end of 2025.

Certainly, loan growth has been below expectations. And accordingly, it is probably to remain like that over the rest of the year. But as we have said in the past, we expect to use our existing capital buffers, in order to support future loan growth in the coming years as long as the economy gains some momentum, of course.

Also, our current capital position should allow us to not only comply with capital requirements associated with Pillar 1, but also any requirement related to Pillar 2, if any. So as long as the economy reactivates and we need more capital in order to operate, of course, in the normal course of business, we expect to always maintain a favorable gap of at least 1% in terms of capital adequacy when compared to regulatory limits, okay. At least 1% of course. And this obviously depends on the evolution of loan growth and also financial results.

Overall. Also, we -- excuse me.

No, yes, I agree, and thank you very much. I interrupt you, sorry. So I just had a follow-up a couple of follow-ups. One is on -- if you can give us also in comment related to potential regulatory related to taxes, the interchange rate, the mortgages of [CDI]. Any update on that will be helpful.

And the other one is a follow-up on your ROE over the medium term. In the past, you have said it could be around 18%. I just want to double check if it's no longer 18%, it could be more at the 20%. I just also wanted to have that.

Okay. This is Rodrigo Aravena. In terms of the regulations, what we've seen so far is that most of the discussion in Chile is more related with the macro policies related with corporate tax rate related with some adjustments in fiscal spending, something like that. But in terms of any material regulation affecting the banking industry and more [idiosyncratic] regulation, we don't have any different assets to pilot here today.

Most of the discussion is related with the macro analysis the macroeconomic in Chile, but again, it's going to depend on who's going to be present in Chile and the competition of telecom as well. In terms of ROE.

As I mentioned, the aspiration is to be the most profitable bank in terms of profitability on return on average capital and it really depends when asking that question in what scenario and what scenario in place and what scenario of rates yield curves. So if we look today, if we look at how we are today or over the past few years, we've been a very profitable bank in the industry, and that's been with a very high level of capital. If we look at the regulatory capital or just our total capital, we have a very high level and we have room to continue growing.

So for the future, we think that we should be -- we have all the tools to be the most probable, but it really depends on the scenario. So when comparing 1 bank to another. It's challenging to give an exact number because it depends on which scenario because it depends on the cycle.

So in this cycle, bank that has over 20% in a cycle where interest rates were much lower, like in the past, it would be a different scenario. But today, the banking sector is a profitable banking sector and we think we should be the leaders amongst that.

So let me just to reinforce one idea. So the main difference in terms of the evolution of ROE in the future, is more related with the macro factors rather than a specific aspect of the bank. So our strategy is very clear. We have been mentioning different presentation today, which are our main resources, we've been discussing that. But the main source of uncertainty in terms of the long-term ROE is related to the final level of the interest rate the final level of inflation in Chile, the final elasticity in terms of loans compared to the GDP.

So my point here is that the main service of certain doubts are related with macro factors, which will affect all the banks in Chile, not only for us, but in our case, the strategy is very clear our differentiating factors as well. So that's why, as Pablo said, we are confident in terms of our fundamentals to be the leader in stability.

Our next question is from Lindsay Shima from Goldman Sachs.

I was wondering if you could expand on what cost control initiatives particularly have driven the lower-than-expected expense growth. And then looking forward, should we start to see expenses accelerate towards inflation levels? And then if so, what would that time line look like?

So if we look at the evolution of Banco de Chile, I think we can see some very important changes over the last let's say, 10, 15 years, where at one point, we had efficiency levels. Worse than the average of the industry. And today, we're amongst the leaders.

One of the things that we implement there's a lot of cost controls across the bank improved incremental changes across different levels, which is using our resources better. One of the main things that we've seen recently is a reduction on the branch network. Before the pandemic in 2018, we had 390 branches. Today, we have 224 branches. And also the increased use of digital tools, digitally enhancing Banco de Chile in terms of the front office and the back office has allowed us to be a much more efficient bank to grow with less operational expenses.

And if we look at the very short term, what we've been doing is we've reviewed our loyalty programs in line with the adjustments of the acquiring reduction fees for the credit card business. We've optimized the areas of the bank in terms of, for example, telemarketing expenses. We've shifted marketing efforts to more digital channels, which we've seen an improvement in terms of costs as well over the last period. This whole initiative started very easily where you could find a lot of easy areas to reduce expenses.

But today, it's becoming a little bit more it taking a little bit longer in terms to find the significant improvements quickly as we did in the past. We have a branch network that today is more streamlined.

We have implemented a lot of digital solutions. And however, we think that we can continue still to be -- have very good efficiency indicators despite the high operating income that we've had, thanks to inflation and other onetime effects. So in the long term, we think that we should have a efficiency ratio better than 42%. That's our aspiration. And I think with that explains, I love the question. But there is a second part to your question, which I didn't catch.

It was just how long should it take for us to see the efficiency ratio get towards that 42%? And when we should start to see expenses growing sort of inflation?

Well, the aspiration is less than 42%. So we're well below that. Probably what I would say is this year, we have 38% expected efficiency ratio in the guidance. The aspiration is to be below 42%. It's something that we've, over the last few years, has been well below, so not necessarily returning to 42%. It's something that's reviewed on an annual basis. No change depending on the evolution of the bank, especially, today, there's so many changes over the past, let's say, 5 years with all the digital initiatives that the bank can operate much more efficiently.

So it's important to take that into consideration. So the target isn't to increase expenses. We'll continue to look for new areas and where we can improve, and we're doing that. But it's a lot of incremental changes. Today, we've implemented a lot of changes in terms of even purchasing areas where how we purchase different products and services from other companies. We've implemented a lot of changes, which has helped improve the indicator, but not necessarily we're planning to move to 42%. We'll continue looking to improve and be better.

Our next question is from Yuri Fernandes from JPMorgan.

Thank you Pablo, and congrats on another very good quarter. I have a few questions as well. Maybe I would like to start with your loan growth outlook. I know you have a guidance to grow slightly above the industry and for the industry, you're talking about 4%. This is below the nominal GDP, right? You just revised the GDP up to 2.3% inflation should be, I don't know, 3%, 4%.

So industry is still growing below nominal GDP in Chile and maybe you grow slightly above the industry. My question is, why not higher petite? Like when should we start to see better loan growth here for you? Because my concern is that once inflation normalizes and you are growing your loans at a very limited pace like 4%, I don't know where the revenue will come from?

And then I have my second question regarding fees, like fees, they have been saving the day. These are growing some 8% year-over-year. This is way above more growth. This is above the number of clients' growth. So I would like to explore a little bit more the fee line, how -- what is the outlook for the fees, like you believe this can continue to grow above the loan growth above the number of clients? I think this year, it has been a lot driven by our mutual funds, right? I think you put this in the release and even in the mutual funds, we see fees growing faster than AUM. So maybe, I don't know, performance fee is a little bit of price regarding your mutual funds.

But also checking accounts, right, checking accounts have been growing a lot, like 11%. It is also above the number of clients. So I don't know, I think you see there is a component of pricing in most of those things. And I don't know how sustainable those things are. So if you can help me to understand 1 loan growth because I think this is the model of many of the revenue lines, right? And 2 fees like how fees can evolve going forward because Chile have been very good and congrats on that. But my concern is that how sustainable this good pace is?

And if I may, just a follow-up on fees regarding the costs.

We saw an increase on your credit cards loyalty fees if you can explain a little bit what were those campaigns, what is your credit card strategy? I think this is an entire other topic, but I would love to hear your view on the credit card operation as well.

Hi, Yuri, this is Rodrigo Aravena. Thank you very much for your question. I'm going to take the first question. In terms of the loan growth, what we have today and what we also believe is that there is like a decoupling between the loan cycle compared to the GDP growth. In fact, if you analyze, for example, the loans to GDP rate in Chile, that number today is around 76%, 77% in terms of the nominal loans compared to the nominal GDP in pesos. Which is a number that is well below the numbers that we used to have in the past.

It's worth to mention, for example, that because the pandemic, the number was higher than 80%. During the pandemic, the number was even close to 90%. But we acknowledge the season of temporary factors that increased that temporarily that ratio between low GDP. But all in all, we think that 76%, 77% is below the numbers consistent with the fundamentals, but there are some explanation on that.

When we analyze the chart that we showed in the presentation, we can see that there is a very important delay in terms of consumer loans which are nearly 20% in real terms below the level that we have by 2019, but there are some explanations behind that, for example, the very high levels of interest rate that we have until the previous year and also the excess of liquidity that negatively affected the demand for consumer loans. And also, we have an important delay for commercial loans, bad explanation of that placed with the very weak investment growth that we've seen during the last year.

It is also important to keep in mind that despite the positive economic growth that we had last year, the main driver of that growth was related with exports rather than domestic demand. In that aspect, we have to remember that the key driver for loans is related with the domestic demand. And in this area, we are more optimistic for the future since today, we have a better leading indicator for investment. A similar story we have for [private] consumption. So basically, this year, we are expecting that at the better domestic demand, which at least partially offset the weakness in total exports. So that's why we're expecting a gradual recovery in loans for the future.

What is reasonable to expect in the long term? It's reasonable to see elasticity of loans to GDP of a number of around 1.5x like that, and sometimes it would be higher in more negative times, it could be a bit lower, but the elasticity that we have today is not sustainable for the long term. And so basically, what we have today is an important delay a decoupling, but in the future, it's reasonable to expect a recovery in both commercial loans and consumer loans, which are our main targets.

In terms of fees, what we've always mentioned is that fees should grow in the mid- to high-single digits, which is completely in line with customer growth plus low inflation. Customers have been growing between around the 5% to 7% on over the last decade. And that continues to be the case. If we look at current accounts, we continue to grow strongly. And one of the reasons why we're very optimistic about the fund account, was precisely to expand our customer base so that we could have new customers entering the bank that we could cross-sell to other products and services.

In fact, 30% of the new current accounts come from fund accounts, fund existing accounts. So this is an important area where we've seen improvements. So these customers are also -- we're offering credit cards, the customers enter Banco de Chile, they received, obviously, a current account package. And these also drive fees.

So in this quarter or this first half of the year, the fees have been driven through by AUM growth because customers are searching for higher profitability from their investments were coming from a high inflationary period. So their investments in time deposits, for example, we're earning at 1 point around 11%. And today, the overnight rate is around the 5% level. So things have changed and we've seen a change in terms of how customers are investing their liquidity, and that's moved into the mutual fund business, and we've made new products to also enhance that offering.

So moving forward, what we see is a customer base that should continue to grow and continue to be driven in part by new fund customers moving into Banco de Chile and as well as cross-selling across the bank. So working together with the subsidiaries and Banco de Chile to cross-sell to the customers in the subsidiaries in Banco de Chile and Banco de Chile and our subsidiaries.

So the 8% growth that we've seen year-to-date is reasonable in terms of the level of customer growth, what we've been doing in terms of cross-selling, and it's important to remember that, these are charged based in U.S. So inflation plays a role as well. So mid- to high single-digit mix complete sense.

If I may, just a follow-up on fees because it is one of your strategies. And I think part of the competence you have is that you always create like new avenues even whenever we don't see loan growth, and I think this is part of your answer. Just on the acquirer on Banchile Pagos like the Pagos. I think it's the target for the year-end.

Is there any update on that? Like any KPI you can share like any goals you have? I think like I read an interview, and given you are entering the game a little bit late, maybe you were less positive, but maybe this can be good for fees as well. So if you can comment on Pagos. So like Banchile Pagos, would be interesting.

So yes, so Banchile Pagos, it's an important initiative that we're planning to launch in the last quarter of this year. This strengthens our position as a full-service functional institution to all of our customers. So obviously, now we can give them a complete suite of products and services to these business customers. It's where it focuses SMEs and middle market companies, where we have a very strong position. So it's an area that we can cross-sell, give this value-added products to these customers with Banco de Chile infrastructure. So this is very important for us. So based -- if you look at the size of our SME book, we have about 15%, a little bit less than 15%. Total loans come from SMEs. There's 150,000 customers there.

There's a huge growth potential that we have for Banchile Pagos as well. KPIs, we don't have anything to share today. But we don't think that we've entered the market late, we've been waiting to see a clear understanding of what the risks and changes, regulatory changes that were occurring would happen and how we could implement an acquiring business ourselves.

So we think that similar to the fund account, which we proved, which was also considered that we are entering late, we've proved very successful. And today, we have -- we have almost 2 million customers from FAN, and it's one of the most important drivers of current accounts growth. So we're confident with this new acquiring business.

[Judy] sorry, just to clarify and reinforce the idea despite the decoupling that we have this year, in terms of loan growth compared to [GDP] growth, we expect a normalization in the future. So if we assume, I don't know, elasticity of 1.5x, for example, of loans compared to GDP. It's reasonable to expect that if the economy grew, for example, a number between 2% and 2.5% real terms and inflation rate between 3% and 3.5%. It's reasonably expect in that scenario. Loan growth in nominal terms of high single digits. Just to be clear, what we expect for the future.

Our next question is from Daniel Mora Ardila from CrediCorp.

Thank you for the opportunity to ask questions. I have just 1 question regarding loan growth. considering that we are in a challenging scenario for loan dynamics. I would like to understand what is the short-term strategy to grow above the industry level, what segments or products are you planning to grow? And also given the recovery that we are expecting in the future, do you plan to change the longer strategy? Or it will be maintained as the same as we should see in the short term. Thank you so much.

Pablo here. In terms of loan growth, what we're expecting, what our focus is we're focused on high potential segments. So those high potential segments is SMEs consumer and consumer lending. And in terms of SMEs, we're targeting businesses with obviously scalable models, strong credit profile. This is a segment that, as I mentioned earlier, we have just under 15% of the total loan book is dedicated to the segment. We have very high-quality customers here, a customer base that we're interested to continue growing. We've worked a lot with these customers. We hold a variety of conferences. We have very strong relationships in Banchile Pagos is another tool that we'll be offering in the fourth quarter for these customers, which will continue strengthening the relationship.

So this is an area that historically has been less penetrated in Chile. It became a little bit more penetrated during the pandemic. But we still consider it to be there one of the areas that will have the fastest level of growth in the future.

Today, the demand is a little bit slower, but as the economy improved, we should expect an improvement in this segment together with the corporate segment. In consumer lending, we're focused -- we're a bank that's focused in the more affluent, the more operating income and middle income segments.

So we're very focused on the type of services -- services that we offer these customers, how we're offering and we're using a lot of digitalization as well in order to grow consumer loans across the board, but we're more focused in the upper and middle income segments.

So what we've seen today is some banks gaining a little bit of market share, but they're focused on a little bit different segments than we are. And we've been bringing out new innovative products, which have been driving these client acquisitions and making new cross-sell opportunities.

If we look at a little over the digital initiatives that we've done in order to -- because obviously, in this segment, it's important to be a bank that offers very high-quality service across all channels. So today, we're a bank has implemented a lot of front office digital solutions. Most of the transactions are being done online. For example, over 90% time deposits as well is very high, over 80%.

Even mortgage loan applications, we have a very high level of 50%. So we're a much more digital bank than we were 10 years ago, obviously. So this is also helping to grow this segment in consumer lending. And obviously, as the economy improves, we should expect to see an improvement in the multinationals and large corporations in Chile, but that's has had very little demand due to the economic and political situations that we've had over the past 5 years.

Perfect. Considering would you expect that this change in the loan mix to be significant and offset the normalization of inflation and also the normalization of interest rates. On margins, if we see that we are planning to grow in SMEs and consumer, I'm wondering if we could see that NIM could be maintained around 4.7%, 4.8% even with the normalization of inflation and interest rates.

Remember that this year, we're expecting only inflation of 3.4% in terms of variation of the U.S. So that 0.4% or 0.5% above the level of the long-term target. It only represents around 10 basis points. So our expectations is that net interest margin should be around the levels that we have today, maybe slightly less than 4.8% with around 4.5% to 4.7% is reasonable, depending on inflation.

And it also depends on -- loan mix is very important. So today, what we've been seeing is a lot of growth in the industry and thus in mortgage loans, which has lower net interest margins. And what's happened over the last 15 years is the mortgage loan portfolio grew significantly and that brought down significantly together with other market factors, net interest margins to what we saw prior to the pandemic.

And today, thanks to market factors, we have these higher levels of net interest margins. But the rates in terms of interest rates, we think that it will probably remain higher for longer. Maybe Rodrigo can mention about the long-term interest rates for overnight rate that we expect in the long term, medium term.

So basically, the main question that we have today is, okay, what's going to be the main parameters in the long term. Today with the information that we have today in the next -- during the next year, we're going to have an interest rate above the levels that we used to see, for example, for before pandemic, similar economic growth. But at the end of the day, we have a different mix trends that we have to evaluate.

So that's why we have mentioned that inflation probably will be lower in the future, but we don't have an important gap in inflation today compared to will have in the future interest rates, probably the terminal rate will be around 4%. Today, the rate is 4.75% where -- but on the other hand, we're expecting a recovery in loan growth. So that's why this opposite trends will likely be that the result of that mix trend will be a similar level of stable NIM as Pablo said before.

Our next question is from Neha Agarwala from HSBC.

Congrats on the results, and thank you for the very clear detailed answers through the call. Just quickly [Audio Gap].

It looks like Neha dropped. Perhaps we can take her question once she dials back. Our next question is from Andres Soto from Santander. Please go ahead.

Most of my questions have been already addressed, but I still have a question regarding dividends and capital position. Previously, on this call, you mentioned that you target for core equity Tier 1 was to be 100 basis points above the minimum regulatory requirement or at least 100 basis points and you are way, way, way above that level at this point.

And that, in addition to the additional reserves you have in your balance sheet that is as you mentioned, CLP 600 million. So I would like to understand your thoughts around the possibility of an extraordinary dividend and what will need to happen for that to be considered as a potential for investors.

Andres, this is Daniel Galarce. Well, extra dividend or a payout ratio higher than 60%. That is our long-term view with respect to dividends would be only possible under some specific circumstances like we have had in the recent years, is only possible under consistently lower-than-expected growth and also higher than normal net income.

It's also important to note that at least we will always retain the inflation effect on equity or capital every year. So if economic activity and private investment in particular, remains subdued in the midterm and our financial performance keeps strong. We cannot rule out to temporarily decouple from our midterm view in terms of dividend distribution, as we have done in the recent years.

And definitely, the -- during 2025, our results have continued to consistently with our expectations and loan growth also remains, remains tempered and subdued. However, any change from this baseline scenario, in terms of dividend payout is something that needs to be determined by our shareholders every year.

Absolutely, Daniel. And regarding the additional reserves that you guys have in the balance sheet. It's much higher than any other bank in Chile and despite having much better asset quality indicators. What are your thoughts around that position is going to be released gradually and cost of risk pressure? Or is that a potential source of dividends for shareholders.

The idea -- this is Pablo speaking. The idea behind the additional provisions is to use in negative cycles. We did release them earlier this year for the change in models for the consumer loan book. Looking forward, obviously, the Board of Directors makes these decisions and analyzes based on circumstances that we're seeing.

So what we've mentioned in the past is if you don't need these additional provisions, a portion of these additional provisions could be reversed and paid out, but there's no clear time regarding that. Today, there's still a lot of uncertainties in terms of economical global macro scenarios, geopolitical. So today we don't have any new information but it's something that's taken into consideration every year. So releasing these provisions slowly, it hasn't been or a payout of these additional provisions hasn't been discussed, but it's something that we have to continue looking forward.

Thank you. We'll get back to Neha Agarwala from HSBC.

Congratulations on the results and thank you for the detailed answers through the call. Just a quick one. What kind of cadence should we expect in the coming 2 quarters for this year? Any big moves that we should be mindful of to create opportunity. And second, just on the upcoming election, any uncertainty that you see depending upon which candidate is finally goes through the elections and when the presidential election. Any kind of risk that you see from the upcoming elections?

I think one of the things to take into consideration is how the evolution of inflation will move from here on. The last figure that we had was a negative level of inflation. So It will be interesting to see the next print, which comes out in a couple of days to see how that will affect the third quarter results. This will be very important. So depending on that, we'll see how our bottom line will be affected for us in the industry in terms of interest income from inflation.

I think that's the most relevant area other than that what we're expecting in line with what we mentioned in the guidance is a return on average capital of around 21% and net interest margin that will drop a little bit because there's an expectation that the inflation number will drop the third quarter figure, a little in terms of inflation for that quarter, NIM of 4.7%, efficiency 38% and the cost of risk, which we've reduced to 1%, around 1%. And this is because of the very good performance that we've had in the first half of the year.

And we're expecting that this trend should more or less stay similar. We don't see any large changes in the immediate term in terms of risk. So other than the U.S. variations is what we've taken into consideration for our guidance for this quarter and Rodrigo will answer the other part.

Sure. Thanks for the question Neha. We know that the political environment is getting more and more important everywhere. In our case, I'm saying that it's critical to be aware that the political system in Chile is based in important counterweights between the government, the Congress, also important to keep in mind that any important performance in Chile has to be approved by the Congress in both cameras and the Congress is valid, for example, for the case of Chinese taxes, changes in the constitution, et cetera. So that's why I would say that it will be very important to analyze the results not only of presidential election, but also in terms of the composition of the Congress given the very important role that the Congress has in Chile.

So far, what we've seen is that there is a broad consensus in the country in the sense that it's very important to address the important challenge is in economic growth, especially today, given the growing uncertainty that we have in the rest of the world. Also important to address different challenges on the labor market in terms of reviews the bureaucracy -- the [indiscernible] et cetera.

So far, we haven't seen any discussion related to structural changes in the economy but again, the main uncertainty that we have today for the countries related with the global economy, related with the evolution of the copper price, the evolution of growth in our main 3 partners, which are China and the U.S. And locally, I would say that it's not only a matter of who's going to be present in Chile, but also the composition of the commerce.

Our next question is from Ewald Stark from BICE Inversiones.

Well, your current basic capital ratio is really high, especially compared with what's required by the regulator. And this is basically a result of almost 0 loan growth in the past couple of years. So my question is, what's your targeted basic capital ratio once loan growth reactivates or at least, why do you feel come first of all?

This is Daniel Galarce. Well, basically, as long as the economy reactivates in the future, we expect to use our capital for doing business, of course. And accordingly, we aim to always maintain a favorable gap of at least 1% of our regulatory limit for all of our capital adequacy ratio. This is basically what we are seeing in the future, but there is not a specific time frame for that, of course.

Okay. But Banco de Chile traditionally has -- do you hear me?

Yes, we can hear you.

Banco de Chile traditionally had as always complex capital ratios and other requirements well above what the meaning required ratio. So do you have like any guidance about where basic capital like be in the next couple of years?

Well, in the next couple of years, it will depend on the economic growth and also loan growth, of course, and how we can use our capital for doing business. But basically, if everything works as we expect, this is the economy reactivates and so on, the minimum amount or the minimum rate of capital that we expect to comply with is to be at least 1% over total regulatory limits.

Okay. Perfect. Thank you.

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

Well, thanks for listening to the call today, and we look forward to discussing our third quarter results with you in the future. Have a good day.

That concludes the call. Thank you, and have a nice day.