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Banco de Chile said the start of 2026 is being shaped by an oil-driven supply shock that pushed inflation higher, and it has revised its 2026 inflation forecast to 4.3% while expecting the policy rate to remain around 4.5% through 2026 amid a more cautious central bank stance.
First-quarter results showed net income of CLP 269 billion, a ROE of 18.2%, NIM of 4.1% and a CET1 ratio of 13.3% after dividends, with revenues down year‑over‑year mainly due to lower inflation‑linked income but supported by higher NII and fee income.
The bank is regaining lending momentum and digital traction—commercial lending recovered market share, FAN accounts grew 22% and fee income rose 6.9%—and it updated guidance to target nominal loan growth of 7%, NIM around 4.6%, an efficiency ratio near 38% and return on average capital of 21.5–22.5% (ex‑one‑offs).
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Banco De Chile (NYSE:BCH) executives told investors the bank delivered what Chief Economist and Institutional Relations Officer Rodrigo Aravena called “another positive quarter,” citing performance in profitability, demand deposits, market share and asset quality, while also pointing to progress in digital initiatives and ESG.
Aravena said the start of the year was marked by a shift in global conditions following an escalation of geopolitical conflict in the Middle East, which he described as creating an external supply shock that has pushed up inflation pressures, particularly through fuel prices. He noted Chile’s CPI rose 1% in March, with year-to-date inflation at 1.4% for the first quarter. He added that CPI excluding volatile items increased 0.5% in March, though he expects pressures to intensify in the short term.
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Aravena said CPI likely increased to around 1.6% in April, driven by additional fuel price increases and “some second-round effects” tied mainly to indexed prices. He also highlighted a rise in inflation expectations, noting break-even inflation rates implied in swaps increased by more than 100 basis points to above 4% for this year, and that Chile’s economic expectations survey now anticipates inflation of 4.3% in 2026, while longer-term expectations remain anchored at the 3% target.
Against that backdrop, Aravena said the Central Bank of Chile has adopted a more cautious stance. In March, the bank kept the policy rate at 4.5% and removed its prior easing bias, while signaling it would assess decisions meeting by meeting and leaving open the possibility of rate increases if needed. Aravena added the central bank’s guidance suggests convergence toward “neutral levels” around 4.25% could be postponed until next year.
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Aravena said Chile’s economy expanded 2.5% in 2025, supported by stronger domestic demand. He described a shift in the composition of growth, with both investment and consumption contributing more meaningfully. Gross investment grew 7% in 2025 after contracting in 2024, while consumption growth accelerated to 2.8% from 1.4%.
He added that while monthly GDP growth has slowed at the beginning of 2026—citing weaker mining performance and a normalization in commerce—leading indicators such as confidence measures have trended upward in recent quarters. On labor, Aravena said unemployment remained elevated between 8% and 9%, rising to 8.9% in the first quarter from 8.7% a year earlier, though he expects stronger investment and improvement in labor-intensive sectors such as construction to gradually reduce unemployment.
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For 2026, Aravena said the bank’s baseline scenario forecasts GDP growth of 2.1%, reflecting weaker global growth expectations and a less expansionary fiscal stance, while investment is expected to outpace GDP. He also said Banco de Chile revised its 2026 inflation forecast to 4.3% from 3% due largely to higher oil prices, while continuing to expect a normalization in oil prices in the second half and contained second-round effects. Under that scenario, Aravena said the bank expects the policy rate to remain at 4.5% through 2026, with normalization pushed to 2027.
Aravena also pointed to ongoing congressional discussions around government-proposed reforms aimed at supporting economic activity, including a proposed reduction in the corporate tax rate from 27% to 23% over three years, greater tax certainty for investment, lower municipal property taxes on housing, and permitting and licensing improvements.
Head of Investor Relations Pablo Mejia reported total loans of CLP 40.2 trillion, up 2.6% quarter-over-quarter. Operating revenues were CLP 749 billion, with net income of CLP 269 billion, translating to a return on average equity of 18.2%. The bank reported a net interest margin (NIM) of 4.1% and an efficiency ratio of 38.4%.
On credit quality, Mejia said cost of risk was 1.16% and non-performing loans (NPLs) improved slightly to 1.6%. He added that Banco de Chile’s Common Equity Tier 1 (CET1) ratio stood at 13.3% even after paying dividends “above the provisions amount.”
Mejia said operating revenues were flat versus the fourth quarter but declined from CLP 779 billion in the first quarter of 2025, largely due to lower inflation-linked income as inflation normalized and came in below expectations in the quarter. He said the year-over-year decline was partially offset by higher net interest income from loan and demand deposit growth, stronger fee generation, and a CLP 22 billion increase in other operating income related mainly to tax reimbursements from prior fiscal years.
Net financial income totaled CLP 542 billion, consisting of CLP 460 billion in customer financial income and CLP 82 billion in non-customer income. Mejia said customer financial income was essentially flat year-over-year, while non-customer income fell 43.5%, reflecting lower inflation and March interest rate volatility that affected fixed income and derivative position management. He also disclosed the bank’s UF gap in the banking book was CLP 8.9 trillion as of March 2026.
Mejia said the bank is seeking to “take back growth,” particularly in commercial lending where it regained market share. Consumer loans grew 5.1% year-over-year, supported by installment and credit card lending, while residential mortgages rose 3.2% year-over-year, below industry growth of 4.4% as of March 2026. Commercial loans were up 0.8% year-over-year but grew 4.8% sequentially, which Mejia attributed to new corporate lending operations in public infrastructure and concessions and continued momentum in SME lending once FOGAPE amortizations are excluded.
Mejia also highlighted origination trends, saying consumer loan originations rose 16% year-over-year and SME installment loan originations grew 18%. On digital, he said the FAN Account base grew 22% year-over-year in March 2026 and digital current account openings expanded 35%.
Fee income grew 6.9% year-over-year, led by transactional services and mutual funds, according to Mejia. Transactional service fees increased 9.2%, driven by demand deposit account income and a 5.4% increase in debit card transactions, as well as current account growth of 7.2% over the last 12 months. Mutual fund fees rose 6.7% year-over-year, supported by an 8.7% increase in assets under management.
Mejia said expenses totaled CLP 288 billion and were flat in real terms year-over-year, reflecting cost discipline alongside ongoing technology investment. He noted that since 2018, the bank has reduced its branch network by 45% and headcount by 19%. Personnel expenses declined 0.4% year-over-year, while administrative expenses increased due to higher IT services costs and marketing tied to the launch of new services at Banchile Pagos.
On capital and funding, Mejia said demand deposits represent 27.2% of total liabilities, and the demand deposit-to-loans ratio was 37.4%, “the highest among peers.” He reported local-currency demand deposit market share of 20.7% as of March 2026. Total capital ratio was 17%.
Mejia also noted that Chile’s CMF removed a 0.13% Pillar 2 capital charge previously assigned to the bank, bringing that requirement to zero. Separately, he said there could be medium-term upside to capital ratios from the CMF’s plan to reinforce internal model validation for credit risk under Basel III, though details and timing remain uncertain.
Head of Financial Control and Capital Management Daniel Galarce said the use of internal models could free up capital for banks with strong asset quality, but emphasized it was “still too early” to define the impact, citing the need for more CMF guidelines, which he said are “promised for 2027.”
Management updated its guidance to reflect revised inflation expectations. Mejia said the bank still expects nominal loan growth of 7% (driven by higher inflation), increased NIM guidance by 10 basis points to around 4.6%, and reiterated cost of risk expectations of 1.1% to 1.2%. The bank expects the efficiency ratio to improve to around 38% by December 2026. Mejia said return on average capital and reserves guidance increased to 21.5% to 22.5%, excluding non-recurring events, while also highlighting risks tied to the Middle East conflict escalation, a still-weak labor market recovery, and ongoing domestic reform discussions.
In response to analyst questions, Aravena characterized the inflation rise as a supply shock and said the bank expects a period of higher inflation followed by normalization. Mejia added that NIM sensitivity to inflation is around 20 basis points and that the bank does not have “so many floating rates,” with time deposits repricing more quickly. The bank said its baseline scenario does not assume a central bank rate hike, though Aravena noted a higher-for-longer oil price could change that outcome.
Banco de Chile (NYSE: BCH) is a leading Chilean financial institution headquartered in Santiago. Founded in 1893, the bank is one of the country's oldest and most established banking groups, serving a broad spectrum of individual, corporate and institutional clients. It is publicly listed and operates under Chilean banking regulations while participating in international capital markets.
The bank's core businesses include retail banking, commercial and corporate banking, and investment banking.
The article "Banco De Chile Q1 Earnings Call Highlights" was originally published by MarketBeat.