Banco de Chile SA Q4 FY2024 earnings call

Strategic Progress

• Successfully executing a strategy focused on customer satisfaction, efficiency, and sustainability with six main priorities, aiming to be the most profitable and sustainable bank among peers.

Digital Banking

• Continued growth in digital accounts with 1.7 million customers, introduced new digital accounts like Panoro and a university student current account, enhanced banking app with new features including insurance platform integration.

Efficiency and Productivity

• Digitalized branch sales/service processes, reduced branch network by 12% and headcount by 5% year-on-year, optimized technology expenses, renegotiated contracts, and prioritized digital marketing strategies.

ESG Efforts

• Supported SMEs through programs like FOGAPE Chile Apoya, engaged in community initiatives, and maintained high customer satisfaction and corporate reputation.

Banco de Chile's net income for the fourth quarter was CLP 298 billion, with a full-year net income of CLP 1,207 billion, resulting in a return on average capital of 23.1%. The loan portfolio breakdown shows retail loans represent 65% of the total, while wholesale commercial loans account for 35%. Net interest margin stood at 4.9% for the year. Operating revenues saw a 10% quarter-on-quarter decline but a 1.9% annual increase, driven by customer income growth offsetting a decline in non-customer income.

GDP and Inflation

• Expect GDP growth of 2% in 2025, driven by export dynamism and domestic demand improvement. Anticipate inflation to normalize to 3.8% this year, with interest rates expected to remain stable in the first half of 2025 and reduce to 4.5% by year-end if inflation expectations align with targets.

ROE Guidance

• Aim for a sustainable long-term return on average capital of around 18%, potentially higher if market conditions like inflation and interest rates stay favorable.

• Global economic environment uncertainties, including geopolitical tensions and U.S. import tariffs. - Inflation volatility and its impact on the economy. - Political election impacts on policy and economic stability.

Q: Regarding Chile's political landscape and its impact on economic growth, what is the base case GDP growth expectation and thoughts on Congress support for structural reforms?

A: Expect around 2% GDP growth over the next years as a base case. There is blue consensus on increasing investment, but Congress composition is still uncertain with potential for divided support.

Q: On non-interest income growth, what are the drivers and considerations regarding merchant fee discounts?

A: Key drivers of non-interest income growth include customer growth, particularly in retail accounts. Merchant fee discounts are currently suspended at previous rates, with no immediate news on future changes.

Q: On ROE guidance of 18%, how does it factor in capital levels and payout ratios?

A: ROE guidance considers current capital levels and a 60% payout ratio. The level is conservative but has upside risks based on market factors like inflation and interest rates. Capital is maintained strong to prepare for economic growth and Basel III implementation.

Q: On cost growth and capital payout, what is expected for 2025 and thoughts on higher dividend payout?

A: Expect flattish expense growth with efficiency ratio around 40%. Capital is kept strong to address future growth and Basel III implementation, with dividend payout evaluated based on growth and regulatory requirements.