Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Banco De Chile (NYSE:BCH) posted a net income of 288 billion Pesos, translating to a 21.3% return on average equity for the quarter.
• The bank outperformed peers in terms of net interest margin, fee margins, and total operating margin.
• Customer income grew by 8% year on year, driven by increased revenues from loans and deposits.
• Banco De Chile (NYSE:BCH) achieved a cost-to-income ratio of 36.5% year-to-date, outperforming main peers and long-term targets.
• The bank maintained a strong capital position with a CET1 ratio of 14.3%, consistently outperforming peers.

Negative Points

• Gross investment remains subdued, contracting by 6.1% and 4.1% year on year in the first and second quarters of 2024, respectively.
• The weak economic environment has kept loan growth at low levels, with commercial loans dropping 1.2% year on year.
• Expected credit losses increased by 32% from a year earlier, reflecting a prudent risk management approach.
• Inflation expectations have increased due to unexpected rises in energy bills, with CPI expected to post a 4.5% increase this year.
• The bank faces uncertainties regarding future capital requirements due to ongoing discussions about Basel III implementation and pillar two risks.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with BCH.

Q: How does Banco de Chile view its capital ratio, and is there potential for additional dividend payments given the strong capitalization? A: Pablo Mejia, Head of Investor Relations, explained that while Banco de Chile is well-capitalized, uncertainties remain regarding future capital requirements due to potential changes in regulations, particularly with Basel III. The bank's dividend policy is reviewed annually, considering capital needs for growth and compliance with regulations. The board evaluates the payout ratio each year, aiming to use capital efficiently. Daniel Galarce, Head of Financial Control and Capital, added that the bank aims to maintain a buffer above regulatory limits to prepare for potential future requirements.

Q: What are the loan growth expectations for the coming quarters and next year, and which segments are expected to outperform? A: Rodrigo Aravena, Chief Economist, indicated that while official guidance is not yet available, the bank anticipates normalization in economic growth and inflation. The expectation is for a GDP growth of 2% and inflation around 3.5% in 2025. Loan growth is expected to gain momentum, particularly in consumer and commercial loans, driven by lower borrowing costs and improved economic conditions. The bank aims to grow faster than the industry average.

Q: Are there any gaps in Banco de Chile's digital offerings compared to peers, and what are the focus areas for 2025? A: Pablo Mejia stated that Banco de Chile is continuously enhancing its digital offerings and customer experience. The bank has seen strong growth in digital accounts and is implementing new features to improve customer interactions. The focus remains on accelerating digital growth and ensuring a competitive edge in the market.

Q: What is the outlook for loan growth in 2025, considering political and economic factors? A: Rodrigo Aravena noted that the bank expects a normalization of loan growth to around 5% in nominal terms for 2025. This forecast considers a more sustainable elasticity between loans and GDP, with political developments and global economic conditions being key factors to monitor. The recent municipal elections in Chile suggest potential shifts in political support, which could impact business confidence and economic growth.

Q: With a high NPL coverage ratio, what is Banco de Chile's view on normalized coverage levels, and could there be a release of provisions? A: Pablo Mejia explained that the current high coverage level is a result of prudent risk management policies in response to past uncertainties. While there is potential for releasing some provisions in the future, the timing and triggers for such actions have not been defined. The board evaluates the level of additional provisions to ensure adequate risk coverage.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.