Banco de Chile Q2 FY2026 earnings call

• Strategic Framework

  • Core strategic pillars remain unchanged: customer centricity, efficiency and productivity, and sustainability
  • Mid-term strategic targets: top market positions in returns, DDA balances, local currency, and lending; cost-to-income ratio below 40%; net promoter score above 73; top 3 rank in corporate reputation

• Digital and AI Transformation

  • Launched new digital tools for personal banking and SMEs; fund account base grew 22% year-over-year, digital current account openings expanded 35% year-over-year
  • Scaled AI adoption across the organization for marketing, service quality, fraud detection, compliance monitoring, and internal IT development, delivering measurable productivity gains
  • A merged marketing-technology organizational structure implemented two years ago is driving strong results: 16% year-over-year growth in consumer loan originations, 18% growth in SME installment originations
  • One-third of new current account openings now originate from the bank's FAN customer base, driven by AI-powered pre-approved offers delivered via the Mi Banco app and social media

• Capital and Funding Strength

  • Demand deposits represent 27.2% of total liabilities, with a DDA-to-loans ratio of 37.4% — the highest among peers. Local currency DDA market share reached 20.7%, reinforcing the bank's leading position among private Chilean banks
  • The Chilean regulator CMF removed the bank's 0.13% Pillar 2 capital charge, bringing the requirement to 0, reflecting a positive assessment of the bank's risk profile and governance
  • CMF will begin the process of validating internal credit risk models for the local industry, which the bank expects will deliver medium-term CET1 ratio benefits as an early applicant

• Operational Efficiency and ESG Progress

  • Total operating expenses were 288 billion pesos, with 0% real year-over-year cost growth, maintaining an efficiency ratio of 38.4% (well below the industry average of 46.1%)
  • Since 2018, the bank has reduced its branch network by 45% and headcount by 19% while improving service quality; loans per employee rose 3% year-over-year to 3.6 billion pesos
  • MSCI upgraded the bank's ESG rating from BBB to A, and Banco De Chile was included in the S&P Global 2026 Sustainability Yearbook

As of Q1 2026, Banco De Chile's total loan portfolio reached 40.2 trillion pesos, growing 2.2% year-over-year and 2.6% quarter-over-quarter.

• Retail Banking: Represents 66.1% of total loans. Consumer loans grew 5.1% year-over-year, supported by rising household consumption. Residential mortgage loans rose 3.2% year-over-year. SME loans expanded 3.6% year-over-year, with SME installment loan originations growing 18% year-over-year. Retail banking accounts for 56.6% of total demand deposit (DDA) balances, which grew 6.6% year-over-year.
• Wholesale Banking: Commercial loans grew just 0.8% year-over-year but expanded 4.8% sequentially, with 9.4% quarter-over-quarter growth driven by new public infrastructure and concession project lending. Net credit loss expenses for the wholesale segment declined 2 billion pesos year-on-year, reflecting improving asset quality. Commercial NPLs stood at 1.6% as of Q1 2026.

Total operating revenues were 749 billion pesos, net income was 269 billion pesos, and return on average equity (ROE) hit 18.2%. Net fee income grew 6.9% year-over-year: transactional service fees rose 9.2%, mutual fund fees grew 6.7%, driven by an 8.7% increase in assets under management. Non-performing loans (NPL) across the whole firm improved slightly to 1.6%: consumer NPLs = 1.9%, mortgage NPLs = 1.5%, commercial NPLs = 1.6%. The common equity tier 1 (CET1) capital ratio remained solid at 13.3%, with the total capital ratio at 17%.

• Nominal loan growth guidance is maintained at 7% for full year 2026
• Net interest margin guidance was increased by 10 basis points to 4.6% for 2026, reflecting upwardly revised inflation expectations
• Cost of risk is expected to remain between 1.1% and 1.2%, unchanged from prior guidance
• The efficiency ratio is expected to improve to ~38% by the end of 2026, a slight downward revision from prior mid-term targets
• Return on average equity guidance was increased to a range of 21.5% to 22.5% for 2026, excluding non-recurring events
• All guidance is based on the bank's baseline macro scenario: 2.1% 2026 Chilean GDP growth, 4.3% 2026 inflation, and the central bank holding the policy rate unchanged at 4.5% through 2026, with rate normalization postponed to 2027

• The primary source of uncertainty is the escalation of geopolitical conflict in the Middle East, which has driven higher global oil prices, created upward inflation pressure, and increased volatility in global financial markets
• Domestically, risks include the still weak recovery in the Chilean labor market, and uncertainty around the timeline and final content of the government's proposed tax and regulatory reform package
• The inflation shock from the Middle East conflict is temporary in the bank's baseline scenario, but sustained higher oil prices could lead to permanent inflation pass-through, second-round effects, and central bank interest rate hikes that would impact bank performance
• Implementation of internal credit risk models for capital calculation is still subject to further regulatory clarification, so the magnitude of capital benefits remains uncertain

Q: The bank kept 7% nominal loan growth guidance unchanged despite raising inflation and ROE expectations. Is there upside to loan growth, which segments would see this upside, and could ROE end up higher than the guided 21.5-22.5% range? / A: Management explains the current inflation rise is a temporary supply shock, with inflation expected to normalize after Q2 2026 to hit 4.3% for the full year, so no change to the nominal loan growth guidance. Nominal growth will stay at the projected 7%, while real growth will be slightly lower due to higher near-term inflation. ROE guidance already accounts for the expected higher inflation, but outcomes could change if global conditions evolve differently.

Q: What is the bank's net interest margin sensitivity to inflation and interest rate changes, what capital benefits can be expected from the new internal model validation process, and would any capital upside lead to higher or extraordinary dividends? / A: In the baseline scenario, the central bank will keep rates unchanged because the inflation rise is expected to be temporary, so rate hikes are not part of the base case. NIM sensitivity to inflation is ~20 basis points, which is already incorporated into the 10 basis point upward NIM guidance revision. CMF will not issue final guidelines for internal model validation until 2027, so the exact capital impact is still too early to estimate, though benefits are expected for the bank's high-quality asset base.

Q: What impact will the high projected Q2 2026 inflation have on Q2 NIM and full-year ROE? / A: Management clarifies the 2.7-2.8% estimate referenced is cumulative year-to-date inflation, not quarterly CPI inflation. Quarterly inflation levels are inherently volatile, so the overall full-year impact is already captured by the ~20 basis point NIM sensitivity and the upwardly revised full-year ROE guidance range.