Banco de Chile ($CHILE)

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 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 areas such as profitability, demand deposit, market share and asset quality while maintaining the largest ratio among peers and the soundest capital 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 shop with important consequences across the global economy, particularly in terms of inflation. As we've mentioned in previous conference calls, Chile is a small economy and therefore, vulnerable to final stocks. As turning 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 3.5% in March, reflecting the absence of relevant pressures at the core level, at least for now. We 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 rise inflation in the first half of the year. These developments have contributed to significant adjustments in inflation expectations. As shown in the chart on the top right, breakeven inflation rate implied in flats 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, appetation rose even further, reaching almost 5%. This shift in market expectations is also consistent with the results of the economic potation survey, which now anticipate inflation of 4.3% this year. For longer horizon, expectations remained anchored at the 3% target. In this environment, the Chilean Central Bank has adopted a more cautious monetary positive plans. In March, the Board not only decided to keep the policy rate and 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 member noted that future policy decisions will be assessed at each meeting, leaving over the possibility of a rate increase if needed. Arguing 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 funded 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 remained probably 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 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 lean indicators point to growth ahead. A in the top right chart, the main confidence figures have shown an upward trend in the last few quarters. Third, these factors support a favorable outlook for economic activity in the coming quarters. Turning to the label market, the employment 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 a 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 live with its potential. Our forecast of [indiscernible] for 2026 implies a slight slowdown compared with last year, reflecting both weaker global growth expectations and expansionary fiscal stance announced by the government. Nevertheless, we continue to expect investment to grow faster than GDP, partially offset in 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 base scenario assumes a rather normalization in international oil prices during the second half together with contained second round effects largely limited to indexed prices while inflation expectations remain anchor and labor cost pressures stay moderate. Under this scenario, we expect the Central Bank to keep the policy rate and change at 4.5% through 2026, postponing interest rent 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 21% 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. These discussions are expected to take time and implementation is likely to be Before moving to the bank analysis, I'd like to review the main trends observed in the local banking industry. Please move to the 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 remained relatively stable for the industry at 2.5% with a coverage ratio of 142%, consistent with recent quarters. On the credit side, the model chart shows that the loan-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 experience in the contraction at 14.1%, followed by commercial loans at 99%, while mortgages stands 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 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 effort to support the housing market, considering higher expected inflation in 2026 [indiscernible] we have revised our industry net interest margin outlook to a range of 3.2%, 3.8%, NPLs are projected at 2.3% and 2.4%, and credit loss expenses stable at 1.2% and 1.3%. Now I will turn the call over to Pablo to discuss Banco de Chile's result 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 three 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 six 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 and 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% and 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 their efficiency ratio was 38.4%. Our common equity Tier 1 ratio remained solid at 13.3% even after paying dividends above the provision 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 the 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 year book. 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 of 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. 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 Bogata 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 synergy 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, deliver at low cost, but with high conversion rates primarily through our Mibanco 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 continued 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 fund customer base. Meanwhile, our SME portfolio expanded by 3.6% year-over-year driven by a strong rebound in installment commercial originations to 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 materialize in important operations related to infrastructure and concession projects, enabling us to recover market share in commercial loans. Turning to Slide 11. We continue the 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's 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, comparing their 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 follow 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 has 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 U.S. GAAP 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 two 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 the 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 average interest-bearing 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'll 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 0.93% required 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 a main competition. On the bottom right, the improvement in asset quality is broad based across all segments: Commercial loan NPLs stood at 1.6%, mortgages at 1.5% and consumer loans at 1.9%, all showing sequential improvements. 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, reflected continued cost discipline and consistent execution of our productivity and efficiency agenda. This is a 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 head count 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 services -- servicing model, which now cover around 20% of the retail clients; digital enhancement 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 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 highlight 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 the 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 remains 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 MXN 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 our -- 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, 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 institutions in the Chilean banking industry, supported by a disciplined and consistent strategy, the strongest customer base, 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 Marcus from JPMorgan.

Rodrigo and Pablo, 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 question. 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 you have a temporary rise for inflation. However, for the next quarter, it's likely to have a normalization as well as situation in the rest of the world, the geopolitical conflicts that will be more normalized, right? So that's why we increased our forecast for this year from 3% to 4.3%. And I mean, what I'm trying to say is that we're going to have a high inflation in the second quarter of this year. Probably the inflation the in the second quarter will be between 27% and 28%. But for the next quarter, we are going to have a much lower inflation achieving total inflation in the year around 4.3%. For the next year, we can roll out an inflation rate of around 3%. And also, we can rule out inflation slightly below because the supply shows tend to generate a more temporary impact of inflation. So -- that's why our adjustment for the forecast for this year was only 150 basis points even though the very important right for the second quarter of this year. So that will answers.

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 just slightly down because of everything that you know is happening in the global economy and how that's affecting all the countries, and Chile in Sanofi economy is also affected. So in nominal terms, we're seeing a similar level of loan growth. In real terms, it's slightly below. This should be affecting overall the loan portfolio. But again, we're not seeing that change in the non-loan figure. In terms of ROE, what we said in the guidance was around $21 million 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 rising 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 assuming bit on your NIM sensitivity. We understand you expect higher NIMs on the back of higher inflation. But reinforce for the 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 for Thank you very much for this question. In our base scenario, we are not expecting changes in the interest rates in the -- from Central Bank because we are expecting on the temporary rise in the total inflation in Chile. It's important to remember that in Chile, monetary policy will is based on a over the next year. So given that we're expecting all the temporary impact of inflation and we maintain our forecast for the inflation rate of 3% over the next 3 years and also considering that the current inflation rate -- sorry, interest rate which is 4.5% if not expansionary. The Central Bank has room to continue waiting for the new development inflation. So there's room to continue maintaining the interest rate at the current level. Obviously, if placement rates were higher in the case that, for example, the oil price continue over vary, for example, in that case, we would have an interest rate hike in the future. But so far, it's not our base than .

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 their 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 the Daniel Galarce.

Thank you, Pablo. Neha, this is Daniel Galarce. Well, regarding your question, 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, good 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 of -- 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 analyzed 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 a low around 50 basis points. Higher in net interest margins, and we haven't benefited 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 have 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 ROE for the year-end, also because of this higher expectation of inflation, not including any other onetime events that could occur during the year.

Sorry, just to clarify, the estimate of 25% of inflation is an estimate of new expiration of the work rather than the CPI in 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.