Banco De Chile Q3 Earnings Call Highlights

Key Points

• Banco de Chile raised its profitability outlook, forecasting a 22% full-year return on average capital and reserves, a roughly 36% efficiency ratio and a 4.8% net interest margin. Third-quarter net income was CLP 288 billion, with operating revenue up 3% year over year.
• Weaker economic conditions tempered loan expectations: the bank cut its 2026 nominal loan-growth forecast to 5%–6%, though commercial lending rose 4% year over year and management expects to gain market share as growth gradually improves.
• Credit losses climbed 21.2% year over year as household delinquencies rose amid unemployment and inflation pressures. Management expects a 1.2% full-year cost of risk and said delinquencies should stabilize and gradually improve with an economic recovery.

Banco De Chile NYSE: BCH reported third-quarter net income of CLP 288 billion and raised its full-year profitability and efficiency forecasts, even as a slowdown in Chile’s economy tempered its expectations for loan growth.

The bank generated a quarterly return on average equity of 19.9%, Chief Economist and Institutional Relations Officer Rodrigo Aravena said on its earnings call. For the first nine months of 2026, net income rose 2.2% from a year earlier to CLP 947 billion, while return on average equity reached 21.9%.

Management said commercial lending gained momentum during the quarter and that the bank’s capital position would support growth as economic activity recovers. It also cautioned that unemployment and inflation continue to pressure households.

Bank raises profitability outlook

Head of Investor Relations Pablo Mejía said Banco de Chile now expects a full-year return on average capital and reserves of 22%, compared with its previous range of 21% to 22%. The bank also improved its efficiency ratio forecast to approximately 36% from 37% and raised its net interest margin projection to 4.8% from 4.6%, reflecting higher expected inflation.

The updated outlook incorporates a CLP 68 billion income tax charge to be recognized in October, related to the effect of a lower corporate tax rate on deferred tax assets. It excludes potential changes in additional provisions.

For loans, management lowered its 2026 nominal growth forecast to 5% to 6% from approximately 6%, citing the weaker economy. It expects a full-year cost of risk of around 1.2%, including additional allowances established in May.

Third-quarter operating revenue rose 3% year over year to CLP 758 billion. Mejía said the increase reflected higher income from customers, including loans and fees, as well as CLP 10.9 billion in nonrecurring income primarily associated with the sale of former credit card processor Nexus. Those gains more than offset lower treasury revenue.

Net interest margin was 4.4% for the quarter, up from 4.3% a year earlier. Net fee income increased 8.4% to CLP 174 billion, supported by transaction services, mutual funds and financial advisory work.

Commercial lending drives portfolio growth

Total loans reached CLP 40.8 trillion at the end of September, up 2.9% from a year earlier, or 3.5% excluding a one-time credit card migration effect. Commercial loans rose 4% year over year to CLP 21 trillion, and the bank’s share of commercial lending reached 15.7%, up 30 basis points from December.

Mejía said corporate banking drove much of the recent expansion, with lending to concessions, natural resources and retail businesses contributing to growth. Residential mortgage loans rose 2.5% year over year as the bank prioritized lending spreads over volumes.

Banco de Chile’s common equity Tier 1 ratio stood at 14.1% at the end of September. During the question-and-answer session, Head of Financial Control and Capital Daniel Galarce said the bank expects to use capital buffers to support future lending and, in the normal course of business, aims to maintain a capital gap of about 2% above regulatory limits.

Galarce also referred to a long-run dividend payout ratio of 60%, which he said should allow nominal balance sheet growth of about 7% to 8% annually. Mejía added that the payout depends on each year’s expectations and can be higher when growth is weaker.

Credit costs rise as expenses reflect wage pressures

Expected credit losses totaled CLP 96 billion in the third quarter, equivalent to a cost of risk of 0.96%. Credit losses increased 21.2% from a year earlier, with Mejía pointing mainly to higher retail delinquency as unemployment and inflation affected household finances.

The bank’s nonperforming loan ratio was 1.7% in September. Mejía said management expects delinquency to stabilize and gradually improve as the economy recovers, though labor-market conditions could continue to weigh on individual borrowers in the coming months.

Operating expenses rose 7.2% year over year to CLP 296 billion in the quarter. Management attributed the increase primarily to inflation-linked salary adjustments, part of a special bonus related to a collective bargaining agreement and a comparison effect involving Banchile Pagos. The year-to-date efficiency ratio improved to 35.9%.

Management expects investment-led recovery

Aravena lowered the bank’s 2026 Chilean GDP growth forecast to 0.4% from 1.3%, citing weaker-than-expected mining output. For 2027, the bank expects 3% GDP growth, led by a projected 7.5% increase in investment.

The bank raised its year-end 2026 inflation forecast to 4.7% from 4% and expects inflation to return to 3% in 2027. Aravena said the bank expects Chile’s central bank to hold its policy rate at 4.5% through 2027, while noting uncertainty around energy prices and the labor market.

Asked about next year’s lending outlook, Mejía said the bank was still budgeting but expected to grow above the industry and gain market share. He described the anticipated improvement in loan growth as gradual. Lower inflation could have an impact of around 20 basis points on net interest margin, he said, with portfolio growth and other factors helping offset the effect.

Aravena also addressed the planned leadership transition, saying Hernán Arellano, currently in charge of the corporate division, will take office as CEO on April 2. He said the bank had no significant strategic changes to announce in connection with the transition.

About Banco De Chile (NYSE:BCH)

Banco de Chile is a full-service commercial bank headquartered in Santiago, Chile. Founded in 1893, it is one of the country's longstanding financial institutions and provides banking services to individuals, businesses, corporations and institutional clients throughout Chile.

The bank offers a broad range of products and services, including checking and savings accounts, consumer and commercial loans, mortgages, credit and debit cards, payment services, foreign-exchange transactions, investment products and financial advisory services.

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