Operator:
Good afternoon, and welcome to Banco de Chile's Second Quarter 2025 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. Before we begin, I'd 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 notes in the company's press release regarding forward-looking statements. I would now like to turn the call over to Mr. Rodrigo Aravena. Please go ahead.

Rodrigo Aravena:
Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the second quarter of this year. Once again, we are proud of Banco de Chile overall performance during this period since our bank has demonstrated its strong position in the local market by delivering solid results across various areas. As of June 2025, we reported a net income of [CLP 654 billion] that represents a year-to-date growth of 2%, resulting in an ROAE of 21.9%. As we will discuss later, these outcomes were driven by strong customer income, improved asset quality, increased loan activity in targeted segments and ongoing efforts in cost control and efficiency. As mentioned in previous calls, these results are particularly meaningful given the ongoing challenges and rising uncertainties in the global macroeconomic landscape. In circumstances like we currently face, solid long-term fundamentals truly standard. In this context, it's worth highlighting the bank's key strengths, including best-in-class asset quality a strong capital base and a robust level of additional provisions. These elements set us apart not only in Chile, but all across the region. Now I'd like to share a brief analysis of the macroeconomic environment. Please refer to Slide #3. The Chilean economy continues to show signs of recovery. As illustrated in the graph on the left, growth has followed an upward trend since the second half of 2024, beginning the fourth quarter with a 4% expansion. In the first quarter of this year, GDP grew by 2.3% year-on-year still above estimated long-term trend of around 2%. Although this represents a slowdown when compared to the previous quarter, it's important to note the improvement in certain components of domestic demand. Such as double good consumption up 10.9% year-on-year investment in machinery and equipment up 5.3% year-on-year, as shown in the upper right chart. Certainly, the strengthening observed in domestic demand could anticipate a better trend for loan growth. Preliminarily, data for the second quarter suggest a similar trajectory, according to the monthly Economic Index IMACEC. The economic expanded by 2.9% in the second quarter and 2.6% in the first half of this year is still above the long-term trend. The breakdown showed that commerce sector was one of the main drivers of this expansion. The labor market continues to show mixed signals. In June, the unemployment rate stood at 8.9%, up 60 basis points from a year earlier and 20 basis points above the first quarter. This increase was driven by 0.6% year-on-year rise in the labor force, while there were no changes in the number of employed individuals. As a result, Level 4 participation rate weighted 62%, it still below the pre-pandemic peak of nearly 64%. On a positive note [indiscernible] rose by 3.6% year-on-year, well above the long-term average, providing additional support for private consumption. Please go to Slide #4 to review inflation and interest rate trends. Inflation has remained above the Central Bank 3% target since late 2020, although it's been trending downward, as shown in the chart on the left. In June, headline annual inflation rate stood at 4.1%, down from 4.9% in March, However, core inflation, which excludes volatile items, remained relatively stable, rising by just 10 basis points to 3.8%. This evolution suggests that the decline in inflation has been largely driven by volatile components, such as food, which fell from 5.4% in March to 1.9% in June and energy down from 14.2% to 9.9%. The supply index for goods excluding volatile items, was 2.9% in June. Overall, various indicators point to easing inflationary pressures in recent months. In response, the Central Bank lowered the policy rate by 25 basis points to 4.75% in line with market expectations. The company's statement indicated that further rate cuts are likely this year if the fundamentals continue being consistent with a normally safe inflation towards the 3% target. In this context, the Central Bank suggested that the interest rate is expected to convert towards its neutral level, estimated at around 4% over the coming quarters. The Chilean peso has remained volatile by hovering around CLP 950 per dollar in recent months. However, as shown in the bottom right chart, the U.S. dollar measured by the DXY Index, which reflects the multilateral value of the dollar against our currency basket has weakened significantly this year. A trend, not yet reflected in the local exchange rate. This decoupling may be influenced by Chilean [faster] pesos of interest rate cuts when compared to other countries. Now I'd like to present our base scenario for 2025. Please go to Slide #5. We have revised our GDP forecast for 2025 upward. From 2% in the previous call to 2.3% now. This adjustment reflects higher-than-expected growth at the beginning of this year rather than improved prospects. As a result, we anticipate that the economy will grow slightly below the 2.6% recorded last year due to weaker global activity, which is expected to dampen export growth. However, a stronger domestic demand should partly offset this external drag. This scenario should support or rather decline in year-end headline inflation to a level below 4% and assuming no major external shock or significant depreciation of the Chilean peso. Under these conditions, the Central Bank would lower the monetary policy rate to around 4.25%. Finally, it's important to reiterate the unusually high levels of uncertainty we face particularly regarding downside risk to growth stemming from global factors. Domestically, attention will also be focused on the upcoming precedential and parliamentary elections in November. Please turn to Slide 6, where we provide an overview of the latest trend in the Chilean banking industry. As shown in the chart on the top left, the industry posted another quarter of good results. Net income grew in CLP 1.4 trillion. This performance translated into a return on average equity of 16.3%. Operating revenues seem to be recovering on the grounds of the resilience of recurrent drivers associated with the lending and deposit activity. After some years marked by a greater prominence of financial-related revenues, given important adjustment in key market drivers, such as inflation, interest rate and the emergency of the FCIC funding. Regarding as quality, the chart on the top right shows that nonperforming loans have remained stable at 2.4%, with a coverage ratio at 148% in line with recent quarters. These figures suggest that despite a challenging macroeconomic backdrop characterized by increased unemployment and higher-than-normal borrowing cost, banks have managed to maintain delinquency under control while keeping prudent provisioning levels and adequate buffers to absorb potential credit deterioration. In terms of loan growth, however, as illustrated in the bottom left chart, the loan to EBIT ratio continues to be below trend by reaching 77% as of June 2025. This reflects the subdued pace of credit expansion relative to economic activity registered after the pandemic. This becomes clear in the chart on the bottom right, the persistent weakness in loan growth across all segments in real terms. Since 2019, total loans have contracted with consumer lending showing the carpet decline, followed by the commercial portfolio. Mortgage loans have showed some resilience but still very weak considering the demand for housing given recent demographic, economic and social changes. This slow demand for loans has been largely constrained by high interest rate cautions corporate borrowing due to uncertainty as well as weak unemployment figures. In summary, while the industry has shown signs of recovery in profitability and maintain solid asset quality, credit activity remains soft. Nevertheless, as soon as some sources of uncertainty dissipate, such as the potential impact of external risk factors on the local economy and the outcome of the upcoming presidential and parliamentary elections, among other factors, the lending business showed gradually return to long-term GDP multiplies. Next, Pablo will share information regarding Banco de Chile development and financial results.

Pablo Camilo Mejia Ricci:
Thank you, Rodrigo. Let's review Slide 8, which outlines our strategic framework and aspirations. On the left side of the slide is our strategy, structured around 3 key elements: our purpose, strategic pillars and strategic plan. Our purpose is straightforward to support the development of Chile, its people and its businesses. We achieved this by leveraging our long-standing competitive strength, trust stability and deep relationships across every segment in which we operate. Our strategic pillars define how we operate with a strong focus on efficiency, collaboration and the customer-first mindset. These principles guide both our short- and long-term decision-making, keeping us aligned with innovation and operational excellence. Our business scopes are defined as where we will operate and how we will deliver value, making us more agile, competitive and responsive to a constantly evolving environment and to the needs of our clients. Through this strategic framework, we aim to meet our midterm targets as shown on the right-hand side of the slide. We aim to achieve sustainable long-term industry-leading profitability. We are also targeting market leadership in both commercial and consumer loans in the high Net Promoter Score, which reflects the strength of our customer relationships over time. Additionally, we aspire to rank among the top 3 in corporate reputation in Chile. And on the cost front, we are committed to maintaining a cost-to-income ratio below 42%, reinforcing our focus on operational efficiency and disciplined execution to the development of digital capabilities and the continuous improvement in technological infrastructure. To summarize, our strategy is centered in long-term sustainability with management incentives aligned with these strategic priorities, ensuring we continue to create value for all of our stakeholders. Please move to Slide 9, where we will go over our key business achievements. During the first half of this year, we made significant progress on several initiatives aligned with our strategic priorities. On the digital front, we launched multiple enhancements aimed at improving customer experience and supporting commercial activity. These included new authentication tools for individuals and companies, the integration of our payment app into the main banking platform and the rollout of new credit simulators. In parallel, our fund digital accounts continued to perform strongly, achieving a 30% cross-sell rate to current accounts reinforcing fund's role as a key driver of customer acquisition. To further unlock its potential, we introduced credit cards and micro loans tailored to find users. In terms of AI adoption, we expanded the capabilities of FANi, our virtual assistant, which now supports queries across all FAN accounts. We also extended the use of AI to internal operations, particularly within the commercial and technology teams contributing to improved productivity. In addition, we continue to execute our efficiency and productivity agenda through targeted initiatives. These include IT cost control measures, such as the renegotiation of licensing agreements and gains in productivity driven by digital sales and technology adoption. Likewise, we have captured significant value through initiatives aimed at centralizing subsidiary functions, optimizing organizational of structure, reducing infrastructure expenses and redesigning the service model. In line with this, we recently integrated our debt collection subsidiary called Socofin into the bank's operations, generating synergies and enhancing both operational efficiency and customer experience. In addition, we have made significant progress in the technological transformation process of some of our subsidiaries to continue leading the industry in both the mutual funds and securities brokerage business. In the sustainability front, we actively participated in the FOGAES state guarantee credit programs aimed at stimulating economic activity through the housing construction and mortgage lending. Furthermore, we issued a $122 million bond in international markets to fund social initiatives with a particular focus on supporting women-led small and medium-sized enterprises. Together, these initiatives reinforce the strategic positioning and strengthen our foundation to capture future growth opportunities. Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the second quarter of 2025, posting a net income of CLP 305 billion, equivalent to a return on average capital of 23.3% and the return on average equity of 20.5% as shown on the chart and table to the left. Although these figures represent a slight decrease as compared to the CLP 324 billion recorded the same period last year. Our profitability remains solid. It's important to mention that -- we outperformed our peers in both net income market share and return on average assets as illustrated on the chart to the right. Specifically, in the first half of the year, our market share net income remained well above our competitors and their return on average assets continue to lead the industry with a very wide gap to our competition as illustrated on the chart. These results reflect our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income generating capacity particularly focused on customer income. Our strategy remains centered in building a sustainable and profitable bank, and we continue to aspire to be the industry's benchmark in profitability. Let's take a closer look at our operating income performance on the next slide, 12. We continue to demonstrate the strongest operating revenues in the local industry, reaffirming the resilience of our superior business model through market cycles. As shown on the charts to the left, operating income totaled CLP 763 billion in the second quarter of 2025, reflecting a stable performance despite the context of subdued business activity. This figure was composed of a solid customer income of CLP 626 billion, up 2.7% year-on-year and non-customer income of CLP 137 billion which declined as compared to CLP 161 billion recorded in the same period last year. The decrease in non-customer income was primarily attributable to lower inflation revenues on management of our structural U.S. net asset exposure and the maturity of FCIC funding from the Central Bank in July of 2024. These effects were partially offset by increased net revenues from the management of our investment portfolio that benefited from a downward trend in the second quarter of 2025. Customer income growth was driven by a 6.2% year-on-year increase in net income from loans and the 8.1% annual rise in fee income, which enabled us to offset the decline in the contribution of both demand and time deposits as a consequence of the annual decline in short-term interest rates, which naturally compressed profitability in both products. The annual rise in income from loans was primarily driven by the consumer loan book due to improved lending spreads and a 3.7% annual increase in average balances. Additionally, commercial loans and residential mortgages contributed to customer income growth, mainly thanks to greater average volumes on an annual basis. Taking a closer look at commercial loans, the SME portfolio continued to expand 4.8% year-on-year supporting customer income growth as well. Notably, when [indiscernible] FOGAPE loan amortization the portfolio has been gaining momentum by rising 8.1% year-on-year, helping to improve lending spreads in this segment. As a result, our net interest margin reached 4.7% this quarter and 4.8% as of June, maintaining a leading position in the industry. Fee growth was led by mutual fund management and transactional products. Fee income from mutual fund management rose 23.8% year-on-year driven by a solid 16.6% increase in assets under management. In addition, fees from transactional products were driven by both checking fees that posted an 11.2% year-on-year increase, supported by 4.9% rise in total account holders and fee income from debit accounts growing 6.9% year-on-year, largely fueled by the success of our FAN product, which contributed to an 8.2% increase in the volume of debit card transactions on an annual basis. In this regard, it's worth noting that our FAN product has been a key driver of current account originations, accounting for approximately 1/3 of all new current account customers. The strong performance in operating revenues translated into an operating margin of 6.6% for the first half of the year. These figures underscore the strength of our business strategy and our ability to consistently deliver value to our premium customer base across both lending and non-lending products regardless of the prevailing economic environment. Please turn to Slide 13, where we will review the evolution of our loan portfolio. As illustrated on the slide on the left, Total loans reached CLP 39.4 trillion as of June 2025, reflecting an annual increase of 3.9%. This credit expansion continues to reflect subdued business dynamic across the industry lagging the pace of economic activity. This trend aligns with the Central Bank's latest credit survey, which confirms that overall credit demand remains soft, which, in our view, continues to be the primarily driven by low consumer and business confidence. Breaking it down by segment, mortgage loans grew 8.1% year-over-year, supported by demand from upper income clients. In particular, the origination in the segment were dynamic, growing 14.1% in the first half of the year compared to the same period last year. Meanwhile, consumer loans rose 4.5% annually amid a cautious borrowing environment and interest rates that remain above historical averages. As for commercial loans, they posted a moderate increase of only 1% constrained by weak investment and ongoing political uncertainty. When analyzing the real loan growth relative to pre-pandemic levels, distinct patterns emerge compared to the industry. As illustrated on the right of the slide, we've delivered stronger growth in consumer loans, a segment where we aimed in the lead, while maintaining a comparable pace of expansion in commercial loans. In the mortgage loan segment, the industry has outpaced us, which is consistent with our strategic focus as this is not a segment where we aspire market leadership. It's also important to note that loan volumes remain well below pre-pandemic levels in real terms, indicating room for future faster growth on the grounds of more favorable financial conditions for borrowers, a rebound in domestic demand and a decline in interest rates. In terms of portfolio composition, our commercial loans remained well diversified across sectors as of June 2025, the largest exposures are in social and personal services, financial services and retail, hotels and restaurants, all representing 45% of the commercial loan portfolio. While the real estate and construction sectors jointly represent only 11%. This distribution reflects our prudent risk management approach and their continued commitment to supporting key sectors of the Chilean economy. Please turn to Slide 14 to discuss our competitive balance sheet structure. As depicted in the charts on the top left, our assets and liability structure remains solid and aligned with our strategic focus on commercial banking. As of June 2025, loans represented 73.8% of our total assets. Financial instruments in turn, including trading and AFS and held-to-maturity portfolio jointly accounted for almost 12%. And with held-to-maturity assets represented a minor portion of this figure. It's important to highlight that we exchanged bonds denominated in U.S. during the quarter issued by the Chilean government that were close to maturity and formerly booked as held to maturity. For newly issued bonds, the nominating pesos maturing in 2027. The new bonds were booked as available for sale with changes in market value reflected in equity. On the liability side, deposits remain our primary source of funding, representing 54.8% of total assets. Within this, time deposits and saving accounts accounted for 28.7%, while demand deposits reached 26.1%. As shown on the chart to the right, our noninterest- bearing demand deposits fund 35.4% of our loan book which represents a significant advantage over our peers in terms of cost of funding. This balance sheet structure continues to be one of the key drivers of our outstanding net interest margin. Moving to liquidity. Our ratios remain well above regulatory requirements. As of June 2025, our liquidity coverage ratio stood at over 195%, comfortably above the 100% regulatory limit. The liquidity coverage ratio is designed to ensure that banks hold sufficient high quality liquid assets to withstand a 30-day stress scenario. Accordingly, our current level reflects the strength of our liquidity position. Similarly, our net stable funding ratio reached 117% exceeding the minimum requirement by 27 percentage points. The net stable funding ratio measures the stability of a bank's funding over a 1-year horizon, ensuring that long-term assets are backed by stable funding sources. These figures reflect our prudent liquidity management and strong funding profile. In addition, our U.S. GAAP reached CLP 9 trillion by the end of June 2025, implying the sensitivity of approximately CLP 90 billion in net interest income for every 1% change in inflation. It's important to recall, this gap is composed of both our structural U.S. position, which serves as an economic hedge against inflation for our equity and directional positions managed by treasury to capitalize on short-term rate differentials between the peso and the U.S. Given the persistence of inflation above the Central Bank's target range and the view of our treasury on the evolution of key market factors, we increased our inflation index exposures for a period of time. Although this exposure came down in the second quarter of 2025, as inflation expectations seem to be normalized. We firmly believe that income generated from this strategy has effectively offset the associated risks over time, as demonstrated by the market-leading position we have held in terms of profitability over the last years. Please turn to Slide 15 to review our capital position. As shown on this slide, Banco de Chile continues to maintain a solid capital base, well above the regulatory requirements and our peers. As of June 2025, Our common equity Tier 1 ratio reached 14%, positioning us among the top performers in the industry, including additional Tier 1 and Tier 2, our total Basel III capital ratio stood at 17.8%, significantly above the regulatory minimum and providing a strong capital of slack to support future growth. This robust capital position is the result of a combination of factors, including consistently high profitability and solid earnings retention practices over time. In addition, our positive capital gaps have also resulted from subdued loan growth. Our strong capital strategy is designed to face regulatory changes stemming from the final phase of Basel III implementation while maintaining enough business flexibility to address both organic and inorganic growth opportunities in the future. It's also important to note that Chile operates under one of the most stringent regulatory frameworks with higher risk-weighted asset density in comparison with other countries operating under Basel III, where internal models have a key role. In summary, risk-weighted assets under Basel III in Chile are comparable to those formerly existed in the Basel I framework. On top of that, the local regulations has basically imposed the same capital requirements on the Chilean banking system than those existing countries that present lower risk-weighted asset density, including the systemic and Pillar 2 capital charges together with conservation and countercyclical capital buffers. Despite this, we continue to exceed all capital requirements, underscoring the strength and resilience of our balance sheet. Please turn to Slide 16 to review our asset quality. Banco de Chile continues to demonstrate leading asset quality, supported by prudent risk management and conservative provisioning strategy. During the second quarter of 2025, Expected credit losses totaled CLP 96 billion, reflecting a 1.5% increase compared to the same period last year. This figure remains positive, particularly in the context of a still normalizing credit cycle marked by higher-than-normal delinquency in some business segments. This translates into a cost of risk of only 0.98% and which is slightly below our long-term level and stable versus recent quarters, demonstrating the strength of our loan portfolio diversification and effective risk management. Regarding delinquency, it's important to note that nonperforming loans remained above pre-pandemic levels, as shown in the chart on the top right. This trend is observed across the banking industry. However, past due loans seem to begin with to gradually return to more normal levels as credit conditions continue to ease, particularly in certain lending products, as illustrated in the chart on the bottom right. In this environment, our delinquency ratio stood at 1.47% in June 2025, which is well below the levels posted by our peers. Looking ahead, we expect to see a gradual improvement in asset quality as economic conditions continue to strengthen across all lending categories. In terms of provisions, we maintained the strongest coverage level in the industry. As of June 2025, our total provisions amounted to CLP 1.5 trillion, composed of CLP 825 billion in allowances for loan losses and CLP 631 billion in additional provisions which provides a robust buffer to potential credit deterioration. Accordingly, our coverage ratio stands at 252% in June 2025, reflecting a conservative and forward approach forward-looking approach to credit risk management will significantly outpacing our peers. Overall, our strong asset quality metrics, high coverage levels and disciplined risk management continue to differentiate us from peers and position us well to navigate evolving credit conditions. Please turn to Slide 17. Operating expenses totaled CLP 281 billion in the second quarter of 2025, remaining flat when compared to the first quarter of 2025 and increasing 3% year-over-year. It's important mention this growth remains below the inflation rate that accumulated 4.5% over the past 12 months. The modest increase in operating expenses demonstrate both our ongoing efforts in cost control initiatives. The sustained focus on driving efficiency across the corporation through the adoption of digital solutions. In the top right chart on the slide, we can see a detailed breakdown of the change in operating expenses between the second quarter of 2024 and the second quarter of 2025. Personnel expenses rose by 0.8%, primarily due to higher severance payments, an increased one- off bonuses following collective bargaining processes conducted during the quarter by 2 of our subsidiaries. Administrative expenses went up by 4.3% and mainly driven by higher IT-related costs associated with enhancements to our IT infrastructure, internal initiatives aimed at boosting operational efficiency and marketing expenses due to sponsorships online with our commercial strategy. As shown on the chart at the bottom right, our efficiency level reached 36.4% this quarter, a notable achievement driven by a sustained focus on productivity across the organization which has significantly improved efficiency compared to pre-pandemic levels that averaged nearly 45%. Looking ahead, we remain confident that our strong cost control branch optimization efforts and ongoing efficiency initiatives will support our midterm target of maintaining efficiency levels below 42%. Please turn to Slide 18 for key takeaways. On the macroeconomic front, we have raised our GDP forecast for 2025 to 2.3%, up from the 2% projected last quarter. This revision is mainly explained by stronger-than-expected economic performance in the early part of the year. However, it doesn't reflect an improvement in the outlook of the remainder of 2025, given the deterioration in global conditions, particularly rising trade and geopolitical tensions. As for Banco de Chile, given the solid performance achieved in the first half of the year, we have also updated our baseline scenario for the full year 2025. From a revenue perspective, we expect a net interest margin remain around 4.7% by year-end, supported by an inflation rate measured as a U.S. variation of 3.4%, that remains above the midpoint of the Central Bank's target range and steepened local yield curves as the monetary policy rate continues to decline. In terms of credit risk, we now forecast an expected credit loss ratio of approximately 1% and for the year, below the 1.1% projected in the prior quarter based on slightly better-than-expected credit charges posted during the first half of the year. We also anticipate a gradual improvement in their past due loan ratio as economic activity gains momentum. In operating expenses, we continue to benefit from productivity gains and a strong cost control culture. As a result, we have revised our efficiency ratio forecast down to approximately 38% for the full year compared to the 39% previously forecasted. Based on these drivers and the absence of non-recurring factors, we have increased our full year return on average capital estimate to approximately 21%, up from 20% in the prior guidance. In summary, we remain confident in our ability to continue delivering industry-leading results and to maintain our position as the most profitable and well-capitalized bank in Chile over the long term, as shown on the chart on the left. Thank you. And if you have any questions, we'd be happy to answer them. Thank you very much.

Operator:
[Operator Instructions]. So our first question is from Ernesto Gabilondo from Bank of America.

Ernesto María Gabilondo Márquez:
Thanks for the opportunity to take questions. My first question will be on the political landscape. I will appreciate, Rodrigo, if you can give us your two cents on the presidential costs and potential regulation related to taxes, interchange rate and mortgage and there could be potential impacts for Banco de Chile. My second question will be on NIMs. As you have explained in your presentation for every change of 1% in interest rates, NIM has an impact of around CLP 9 billion. But just wondering, looking beyond this year, how do you see the overnight rate next year? And also, how should we think about NIM next year? And for my last question is, as you said in terms of the ROE you're expected to be around 21% this year. But I just wanted to double check how are you seeing the ROE for the medium term and what will be the minimum common equity Tier 1 ratio you would like to have under that scenario?

Rodrigo Aravena:
Thank you very much for your question. This is Rodrigo Aravena. Well, on the political scenario and macro concerns, we have different things to consider First of all, I think that it's very important to be aware that according to different surveys, it's very likely that there will be a second round in Chile, which will be by the end of this year, since there is not any candidate with more than 50% of votes. And it is very important to remember that in Chile, when there is any candidate with more than 50% of votes. There is a second round, which is scheduled for December of this year. Even though it's not clear it's going to compete in the runoff. There are some topics where there is a broad consensus in Chile that are very important to put on the table in terms of the discussion of the value policy in Chile for the next presidential term. One of them is related with the dynamic growth, so we have seen a growing concern for different candidates in terms of the need to improve the growth in the future. It's very important to remember that in Chile, the average economic growth since 2014 until now has been only 2% which is below the average global economic growth. So that's why we've seen some proposals related with lower corporate tax rates. We've seen some different proposals in order to improve, for example, to reduce the [bureaucracy] different to improve as well by system related with environmental licenses and permit. So what we've seen in general is that there is a consensus in terms to address the different challenges related to growth, employment the fiscal debt as well. And one of the measures that is getting more popular in Chile is the possibility to reduce taxes in the future, but it's important additionally, to be aware that any change related taxes has to be approved by the Congress in both cameras to the Congress. And so that's why it's also important to analyze the result of the parliamentary elections in Chile for the next year. So when we consider all the valuable information, I mean, the weak here is a global environment in Chile, Chile is a very open economy, as you know, so this is a negative news for Chile. But on the other hand, we've seen more dynamism and the domestic demand in terms of deployment, in terms of investment and durable consumption, for example. So that's why we feel comfortable with the forecast 2.3% for the year and it's reasonable to take the number -- a similar number for the next year. In terms of the overnight rate, which was your second question or the part of your question, we are expecting lower interest rates in the future. The Central Bank reduced the rate by 25 basis points in the latest monetary policy meeting to 4.75%. Is it reasonable to expect an interest rate of around 4.25% or even 4% at some point of the next year, but it's going to depend on the evolution of the global inflation exchange rates, et cetera. Of course, these market drivers, market factors will be very important in terms of the final stability ROE of the bank. And Pablo, do you want to go into that.

Pablo Camilo Mejia Ricci:
So in terms of your second question, in terms of net interest margins, what we have today is a level of around 4.8% for net interest margin, obviously, depending on how the inflation level is in the next couple of months. Will depend on the evolution of that figure for the rest of the year and especially for the third quarter. Because as you know, we had negative inflation a couple of months ago. So that would be an important driver to see how the inflation will be for the rest of this year, where we're expecting a level of inflation slightly above in terms of the U.S. variation above the long-term level target of the Central Bank. And we expect that should continue to move more aligned with the Central Bank in the medium term. So we have a little bit higher levels of net interest margin today because of about 0.5% more or less, generates, as you mentioned, about CLP 40 billion more in net interest income -- that's equal to around 10 basis points of NIM. And in the medium term, we think a level of NIM, a reasonable level is somewhere around 4.5% to 4.7% as we've said in prior calls. And obviously, about depends on different factors. It depends on the mix. If we see a recovery in the loan mix, how this recovers, which segments our target segments is consumer loans, SME loans, but we also want to be leaders in commercial corporate banking. So the evolution will depend on the mix inflation as we just spoke, as well as yield curves. So how the interest rates move in the future today. We're in a much better position than prior to the pandemic, but that will depend on these factors on how the evolution of our net interest margin will evolve in the future. And if we go into ROEs, our aspiration is to be the leader in the industry. So we think we have all the tools to do this. We've been enhancing all of our digital platforms, improving productivity across the bank, focus on growing in the most attractive segments in the industry. So this should allow us to maintain a very attractive return on assets and also return on total equity, return on average capital. It's also important to note that when we calculate the traditional calculation of return on average equity, return on average capital. We tend not include the AT1 bonds. It's important to remember that the AT1 bonds. The interest rates of these bonds is actually recorded in retained earnings and not in net interest expense, as you would see or in the profit and loss as you would see normally of any other bonds. So -- actually by admitting issuing AT1. We can actually see that the capital is retained earnings is coming down, so that actually helps ROE. So today, we don't have AT1. So this is something to take into consideration when comparing us to other banks in the industry or globally. And in terms of the capital adequacy ratios, your question we'll pass that to Daniel Galarce.

Daniel Ignacio Galarce Toro:
This is Daniel Galarce. As you probably know, our CET1 ratio is 4% or 5% above regulatory limits today. And this is basically due to the subdued economic growth, of course, and also the excellent financial result we have achieved this year. By the end of the year, we also expect to maintain the current levels of capital adequacy ratios by the end of 2025. Certainly, loan growth has been below expectations. And accordingly, it is probably to remain like that over the rest of the year. But as we have said in the past, we expect to use our existing capital buffers, in order to support future loan growth in the coming years as long as the economy gains some momentum, of course. Also, our current capital position should allow us to not only comply with capital requirements associated with Pillar 1, but also any requirement related to Pillar 2, if any. So as long as the economy reactivates and we need more capital in order to operate, of course, in the normal course of business, we expect to always maintain a favorable gap of at least 1% in terms of capital adequacy when compared to regulatory limits, okay. At least 1% of course. And this obviously depends on the evolution of loan growth and also financial results. Overall. Also, we -- excuse me.

Ernesto María Gabilondo Márquez:
No, yes, I agree, and thank you very much. I interrupt you, sorry. So I just had a follow-up a couple of follow-ups. One is on -- if you can give us also in comment related to potential regulatory related to taxes, the interchange rate, the mortgages of [CDI]. Any update on that will be helpful. And the other one is a follow-up on your ROE over the medium term. In the past, you have said it could be around 18%. I just want to double check if it's no longer 18%, it could be more at the 20%. I just also wanted to have that.

Rodrigo Aravena:
Okay. This is Rodrigo Aravena. In terms of the regulations, what we've seen so far is that most of the discussion in Chile is more related with the macro policies related with corporate tax rate related with some adjustments in fiscal spending, something like that. But in terms of any material regulation affecting the banking industry and more [idiosyncratic] regulation, we don't have any different assets to pilot here today. Most of the discussion is related with the macro analysis the macroeconomic in Chile, but again, it's going to depend on who's going to be present in Chile and the competition of telecom as well. In terms of ROE.

Pablo Camilo Mejia Ricci:
As I mentioned, the aspiration is to be the most profitable bank in terms of profitability on return on average capital and it really depends when asking that question in what scenario and what scenario in place and what scenario of rates yield curves. So if we look today, if we look at how we are today or over the past few years, we've been a very profitable bank in the industry, and that's been with a very high level of capital. If we look at the regulatory capital or just our total capital, we have a very high level and we have room to continue growing. So for the future, we think that we should be -- we have all the tools to be the most probable, but it really depends on the scenario. So when comparing 1 bank to another. It's challenging to give an exact number because it depends on which scenario because it depends on the cycle. So in this cycle, bank that has over 20% in a cycle where interest rates were much lower, like in the past, it would be a different scenario. But today, the banking sector is a profitable banking sector and we think we should be the leaders amongst that.

Rodrigo Aravena:
So let me just to reinforce one idea. So the main difference in terms of the evolution of ROE in the future, is more related with the macro factors rather than a specific aspect of the bank. So our strategy is very clear. We have been mentioning different presentation today, which are our main resources, we've been discussing that. But the main source of uncertainty in terms of the long-term ROE is related to the final level of the interest rate the final level of inflation in Chile, the final elasticity in terms of loans compared to the GDP. So my point here is that the main service of certain doubts are related with macro factors, which will affect all the banks in Chile, not only for us, but in our case, the strategy is very clear our differentiating factors as well. So that's why, as Pablo said, we are confident in terms of our fundamentals to be the leader in stability.

Operator:
Our next question is from Lindsay Shima from Goldman Sachs.

Unidentified Analyst:
I was wondering if you could expand on what cost control initiatives particularly have driven the lower-than-expected expense growth. And then looking forward, should we start to see expenses accelerate towards inflation levels? And then if so, what would that time line look like?

Pablo Camilo Mejia Ricci:
So if we look at the evolution of Banco de Chile, I think we can see some very important changes over the last let's say, 10, 15 years, where at one point, we had efficiency levels. Worse than the average of the industry. And today, we're amongst the leaders. One of the things that we implement there's a lot of cost controls across the bank improved incremental changes across different levels, which is using our resources better. One of the main things that we've seen recently is a reduction on the branch network. Before the pandemic in 2018, we had 390 branches. Today, we have 224 branches. And also the increased use of digital tools, digitally enhancing Banco de Chile in terms of the front office and the back office has allowed us to be a much more efficient bank to grow with less operational expenses. And if we look at the very short term, what we've been doing is we've reviewed our loyalty programs in line with the adjustments of the acquiring reduction fees for the credit card business. We've optimized the areas of the bank in terms of, for example, telemarketing expenses. We've shifted marketing efforts to more digital channels, which we've seen an improvement in terms of costs as well over the last period. This whole initiative started very easily where you could find a lot of easy areas to reduce expenses. But today, it's becoming a little bit more it taking a little bit longer in terms to find the significant improvements quickly as we did in the past. We have a branch network that today is more streamlined. We have implemented a lot of digital solutions. And however, we think that we can continue still to be -- have very good efficiency indicators despite the high operating income that we've had, thanks to inflation and other onetime effects. So in the long term, we think that we should have a efficiency ratio better than 42%. That's our aspiration. And I think with that explains, I love the question. But there is a second part to your question, which I didn't catch.

Unidentified Analyst:
It was just how long should it take for us to see the efficiency ratio get towards that 42%? And when we should start to see expenses growing sort of inflation?

Pablo Camilo Mejia Ricci:
Well, the aspiration is less than 42%. So we're well below that. Probably what I would say is this year, we have 38% expected efficiency ratio in the guidance. The aspiration is to be below 42%. It's something that we've, over the last few years, has been well below, so not necessarily returning to 42%. It's something that's reviewed on an annual basis. No change depending on the evolution of the bank, especially, today, there's so many changes over the past, let's say, 5 years with all the digital initiatives that the bank can operate much more efficiently. So it's important to take that into consideration. So the target isn't to increase expenses. We'll continue to look for new areas and where we can improve, and we're doing that. But it's a lot of incremental changes. Today, we've implemented a lot of changes in terms of even purchasing areas where how we purchase different products and services from other companies. We've implemented a lot of changes, which has helped improve the indicator, but not necessarily we're planning to move to 42%. We'll continue looking to improve and be better.

Operator:
Our next question is from Yuri Fernandes from JPMorgan.

Yuri Rocha Fernandes:
Thank you Pablo, and congrats on another very good quarter. I have a few questions as well. Maybe I would like to start with your loan growth outlook. I know you have a guidance to grow slightly above the industry and for the industry, you're talking about 4%. This is below the nominal GDP, right? You just revised the GDP up to 2.3% inflation should be, I don't know, 3%, 4%. So industry is still growing below nominal GDP in Chile and maybe you grow slightly above the industry. My question is, why not higher petite? Like when should we start to see better loan growth here for you? Because my concern is that once inflation normalizes and you are growing your loans at a very limited pace like 4%, I don't know where the revenue will come from? And then I have my second question regarding fees, like fees, they have been saving the day. These are growing some 8% year-over- year. This is way above more growth. This is above the number of clients' growth. So I would like to explore a little bit more the fee line, how -- what is the outlook for the fees, like you believe this can continue to grow above the loan growth above the number of clients? I think this year, it has been a lot driven by our mutual funds, right? I think you put this in the release and even in the mutual funds, we see fees growing faster than AUM. So maybe, I don't know, performance fee is a little bit of price regarding your mutual funds. But also checking accounts, right, checking accounts have been growing a lot, like 11%. It is also above the number of clients. So I don't know, I think you see there is a component of pricing in most of those things. And I don't know how sustainable those things are. So if you can help me to understand 1 loan growth because I think this is the model of many of the revenue lines, right? And 2 fees like how fees can evolve going forward because Chile have been very good and congrats on that. But my concern is that how sustainable this good pace is? And if I may, just a follow-up on fees regarding the costs. We saw an increase on your credit cards loyalty fees if you can explain a little bit what were those campaigns, what is your credit card strategy? I think this is an entire other topic, but I would love to hear your view on the credit card operation as well.

Rodrigo Aravena:
Hi, Yuri, this is Rodrigo Aravena. Thank you very much for your question. I'm going to take the first question. In terms of the loan growth, what we have today and what we also believe is that there is like a decoupling between the loan cycle compared to the GDP growth. In fact, if you analyze, for example, the loans to GDP rate in Chile, that number today is around 76%, 77% in terms of the nominal loans compared to the nominal GDP in pesos. Which is a number that is well below the numbers that we used to have in the past. It's worth to mention, for example, that because the pandemic, the number was higher than 80%. During the pandemic, the number was even close to 90%. But we acknowledge the season of temporary factors that increased that temporarily that ratio between low GDP. But all in all, we think that 76%, 77% is below the numbers consistent with the fundamentals, but there are some explanation on that. When we analyze the chart that we showed in the presentation, we can see that there is a very important delay in terms of consumer loans which are nearly 20% in real terms below the level that we have by 2019, but there are some explanations behind that, for example, the very high levels of interest rate that we have until the previous year and also the excess of liquidity that negatively affected the demand for consumer loans. And also, we have an important delay for commercial loans, bad explanation of that placed with the very weak investment growth that we've seen during the last year. It is also important to keep in mind that despite the positive economic growth that we had last year, the main driver of that growth was related with exports rather than domestic demand. In that aspect, we have to remember that the key driver for loans is related with the domestic demand. And in this area, we are more optimistic for the future since today, we have a better leading indicator for investment. A similar story we have for [private] consumption. So basically, this year, we are expecting that at the better domestic demand, which at least partially offset the weakness in total exports. So that's why we're expecting a gradual recovery in loans for the future. What is reasonable to expect in the long term? It's reasonable to see elasticity of loans to GDP of a number of around 1.5x like that, and sometimes it would be higher in more negative times, it could be a bit lower, but the elasticity that we have today is not sustainable for the long term. And so basically, what we have today is an important delay a decoupling, but in the future, it's reasonable to expect a recovery in both commercial loans and consumer loans, which are our main targets.

Pablo Camilo Mejia Ricci:
In terms of fees, what we've always mentioned is that fees should grow in the mid- to high-single digits, which is completely in line with customer growth plus low inflation. Customers have been growing between around the 5% to 7% on over the last decade. And that continues to be the case. If we look at current accounts, we continue to grow strongly. And one of the reasons why we're very optimistic about the fund account, was precisely to expand our customer base so that we could have new customers entering the bank that we could cross-sell to other products and services. In fact, 30% of the new current accounts come from fund accounts, fund existing accounts. So this is an important area where we've seen improvements. So these customers are also -- we're offering credit cards, the customers enter Banco de Chile, they received, obviously, a current account package. And these also drive fees. So in this quarter or this first half of the year, the fees have been driven through by AUM growth because customers are searching for higher profitability from their investments were coming from a high inflationary period. So their investments in time deposits, for example, we're earning at 1 point around 11%. And today, the overnight rate is around the 5% level. So things have changed and we've seen a change in terms of how customers are investing their liquidity, and that's moved into the mutual fund business, and we've made new products to also enhance that offering. So moving forward, what we see is a customer base that should continue to grow and continue to be driven in part by new fund customers moving into Banco de Chile and as well as cross-selling across the bank. So working together with the subsidiaries and Banco de Chile to cross-sell to the customers in the subsidiaries in Banco de Chile and Banco de Chile and our subsidiaries. So the 8% growth that we've seen year-to-date is reasonable in terms of the level of customer growth, what we've been doing in terms of cross-selling, and it's important to remember that, these are charged based in U.S. So inflation plays a role as well. So mid- to high single-digit mix complete sense.

Yuri Rocha Fernandes:
If I may, just a follow-up on fees because it is one of your strategies. And I think part of the competence you have is that you always create like new avenues even whenever we don't see loan growth, and I think this is part of your answer. Just on the acquirer on Banchile Pagos like the Pagos. I think it's the target for the year-end. Is there any update on that? Like any KPI you can share like any goals you have? I think like I read an interview, and given you are entering the game a little bit late, maybe you were less positive, but maybe this can be good for fees as well. So if you can comment on Pagos. So like Banchile Pagos, would be interesting.

Pablo Camilo Mejia Ricci:
So yes, so Banchile Pagos, it's an important initiative that we're planning to launch in the last quarter of this year. This strengthens our position as a full-service functional institution to all of our customers. So obviously, now we can give them a complete suite of products and services to these business customers. It's where it focuses SMEs and middle market companies, where we have a very strong position. So it's an area that we can cross-sell, give this value-added products to these customers with Banco de Chile infrastructure. So this is very important for us. So based -- if you look at the size of our SME book, we have about 15%, a little bit less than 15%. Total loans come from SMEs. There's 150,000 customers there. There's a huge growth potential that we have for Banchile Pagos as well. KPIs, we don't have anything to share today. But we don't think that we've entered the market late, we've been waiting to see a clear understanding of what the risks and changes, regulatory changes that were occurring would happen and how we could implement an acquiring business ourselves. So we think that similar to the fund account, which we proved, which was also considered that we are entering late, we've proved very successful. And today, we have -- we have almost 2 million customers from FAN, and it's one of the most important drivers of current accounts growth. So we're confident with this new acquiring business.

Rodrigo Aravena:
[Judy] sorry, just to clarify and reinforce the idea despite the decoupling that we have this year, in terms of loan growth compared to [GDP] growth, we expect a normalization in the future. So if we assume, I don't know, elasticity of 1.5x, for example, of loans compared to GDP. It's reasonable to expect that if the economy grew, for example, a number between 2% and 2.5% real terms and inflation rate between 3% and 3.5%. It's reasonably expect in that scenario. Loan growth in nominal terms of high single digits. Just to be clear, what we expect for the future.

Operator:
Our next question is from Daniel Mora Ardila from CrediCorp.

Unidentified Analyst:
Thank you for the opportunity to ask questions. I have just 1 question regarding loan growth. considering that we are in a challenging scenario for loan dynamics. I would like to understand what is the short-term strategy to grow above the industry level, what segments or products are you planning to grow? And also given the recovery that we are expecting in the future, do you plan to change the longer strategy? Or it will be maintained as the same as we should see in the short term. Thank you so much.

Pablo Camilo Mejia Ricci:
Pablo here. In terms of loan growth, what we're expecting, what our focus is we're focused on high potential segments. So those high potential segments is SMEs consumer and consumer lending. And in terms of SMEs, we're targeting businesses with obviously scalable models, strong credit profile. This is a segment that, as I mentioned earlier, we have just under 15% of the total loan book is dedicated to the segment. We have very high-quality customers here, a customer base that we're interested to continue growing. We've worked a lot with these customers. We hold a variety of conferences. We have very strong relationships in Banchile Pagos is another tool that we'll be offering in the fourth quarter for these customers, which will continue strengthening the relationship. So this is an area that historically has been less penetrated in Chile. It became a little bit more penetrated during the pandemic. But we still consider it to be there one of the areas that will have the fastest level of growth in the future. Today, the demand is a little bit slower, but as the economy improved, we should expect an improvement in this segment together with the corporate segment. In consumer lending, we're focused -- we're a bank that's focused in the more affluent, the more operating income and middle income segments. So we're very focused on the type of services -- services that we offer these customers, how we're offering and we're using a lot of digitalization as well in order to grow consumer loans across the board, but we're more focused in the upper and middle income segments. So what we've seen today is some banks gaining a little bit of market share, but they're focused on a little bit different segments than we are. And we've been bringing out new innovative products, which have been driving these client acquisitions and making new cross-sell opportunities. If we look at a little over the digital initiatives that we've done in order to -- because obviously, in this segment, it's important to be a bank that offers very high-quality service across all channels. So today, we're a bank has implemented a lot of front office digital solutions. Most of the transactions are being done online. For example, over 90% time deposits as well is very high, over 80%. Even mortgage loan applications, we have a very high level of 50%. So we're a much more digital bank than we were 10 years ago, obviously. So this is also helping to grow this segment in consumer lending. And obviously, as the economy improves, we should expect to see an improvement in the multinationals and large corporations in Chile, but that's has had very little demand due to the economic and political situations that we've had over the past 5 years.

Unidentified Analyst:
Perfect. Considering would you expect that this change in the loan mix to be significant and offset the normalization of inflation and also the normalization of interest rates. On margins, if we see that we are planning to grow in SMEs and consumer, I'm wondering if we could see that NIM could be maintained around 4.7%, 4.8% even with the normalization of inflation and interest rates.

Pablo Camilo Mejia Ricci:
Remember that this year, we're expecting only inflation of 3.4% in terms of variation of the U.S. So that 0.4% or 0.5% above the level of the long-term target. It only represents around 10 basis points. So our expectations is that net interest margin should be around the levels that we have today, maybe slightly less than 4.8% with around 4.5% to 4.7% is reasonable, depending on inflation. And it also depends on -- loan mix is very important. So today, what we've been seeing is a lot of growth in the industry and thus in mortgage loans, which has lower net interest margins. And what's happened over the last 15 years is the mortgage loan portfolio grew significantly and that brought down significantly together with other market factors, net interest margins to what we saw prior to the pandemic. And today, thanks to market factors, we have these higher levels of net interest margins. But the rates in terms of interest rates, we think that it will probably remain higher for longer. Maybe Rodrigo can mention about the long-term interest rates for overnight rate that we expect in the long term, medium term.

Rodrigo Aravena:
So basically, the main question that we have today is, okay, what's going to be the main parameters in the long term. Today with the information that we have today in the next -- during the next year, we're going to have an interest rate above the levels that we used to see, for example, for before pandemic, similar economic growth. But at the end of the day, we have a different mix trends that we have to evaluate. So that's why we have mentioned that inflation probably will be lower in the future, but we don't have an important gap in inflation today compared to will have in the future interest rates, probably the terminal rate will be around 4%. Today, the rate is 4.75% where -- but on the other hand, we're expecting a recovery in loan growth. So that's why this opposite trends will likely be that the result of that mix trend will be a similar level of stable NIM as Pablo said before.

Operator:
Our next question is from Neha Agarwala from HSBC.

Neha Agarwala:
Congrats on the results, and thank you for the very clear detailed answers through the call. Just quickly [Audio Gap].

Operator:
It looks like Neha dropped. Perhaps we can take her question once she dials back. Our next question is from Andres Soto from Santander. Please go ahead.

Andres Soto:
Most of my questions have been already addressed, but I still have a question regarding dividends and capital position. Previously, on this call, you mentioned that you target for core equity Tier 1 was to be 100 basis points above the minimum regulatory requirement or at least 100 basis points and you are way, way, way above that level at this point. And that, in addition to the additional reserves you have in your balance sheet that is as you mentioned, CLP 600 million. So I would like to understand your thoughts around the possibility of an extraordinary dividend and what will need to happen for that to be considered as a potential for inves