Banco de Chile SA Q2 FY2024 earnings call

• Strategic advances: Focus on customer satisfaction, efficiency, and long-term sustainability with six key priorities, aiming to be the most profitable bank, improve efficiency, gain market share in loans and deposits, and provide exceptional customer experience.
• Digital Banking: Integrated new features in the banking app, implemented enterprise digital functionalities, redesigned transaction experience, and launched B-Pago for acquiring business.
• Efficiency: Closed 15 branches, reduced branch footprint, optimized resource allocation, rationalized software licenses, adjusted loyalty program, and optimized telemarketing expenses.
• ESG: Created a sustainable finance council, implemented corporate volunteering programs and financial education activities, and released the first ESG allocation report.

Banco de Chile reported net income of CLP 324 billion in the second quarter of 2024, with an ROE of 24.6%. The return on equity for the first half of the year was 23.6%. The bank led the industry in capitalization with a strong 13.8% CET1 capital. The efficiency ratio was an impressive 55%. In terms of loan portfolio, the retail loan portfolio (composed of individuals and SMEs) concentrated 65% of loans, while wholesale commercial loans amounted to 35% of the total loan portfolio. Total loans grew 4% year-on-year and 0.8% sequentially. Mortgage loans drove growth up 7.2% year-on-year, consumer loans expanded 3.4%, and commercial loans grew 2.3% after four consecutive quarters of negative expansion.

• ROE revised to around 21% due to changes in interest rate expectations, inflation outlook, and yield curve stability. Inflation expectations for 2024 increased to 4.3%, and the overnight rate is expected to be 5.5% by year-end.
• Loan growth expected to be around 5.5% for the year, with mid to high single-digit fee growth driven by customer growth in current accounts and mutual funds.

• Economic environment uncertainties, including global economic factors, geopolitical risks, and local inflation and political election impacts.
• Potential second-round effects of inflation, especially from electricity bill hikes.
• Credit risk concerns due to weak economic environment and potential impact on nonperforming loans.

Q: Can you elaborate on the revised guidance to 21% ROE?

A: The revised guidance is due to changes in interest rate expectations, inflation outlook, and yield curve stability. Higher inflation assists net interest margin, mix of loan portfolio growth, and funding improvements support profitability.

Q: What is Banco de Chile's advantage with the new acquiring business subsidiary B-Pago?

A: B-Pago enhances the value proposition for business customers, especially SMEs and middle market segments, by strengthening and widening service offerings.

Q: What are the expectations for loan growth next year?

A: Loan growth is expected to be mid to high single-digit, with potential improvement in consumer and commercial loans as the economy normalizes and interest rates stabilize.

Q: How should we think about elections in Chile and their impact on loan growth?

A: Elections, including municipal and presidential elections, can impact loan growth, but the economy is expected to continue its cyclical recovery with positive trends in employment and consumption.

Q: What should we expect regarding dividends and excess capital?

A: Dividend decisions are made by shareholders, and the bank will continue to manage capital based on economic conditions and regulatory requirements, with potential for special dividends or M&A if opportunities arise.