Good morning, everyone, and welcome to our third quarter 2026 conference call. I'm Andrés Atala. It is a pleasure to welcome you as we go over our performance for the year to date. Joining me today are Roberto Pulido, CFO of Bci, Ms. Francisca Pérez, Principal Economist, and Jose Marina, CFO of City National Bank of Florida. We are excited to share the financial and strategic momentum that shaped this latest period. Before we start, allow me to outline our agenda for today's session. To begin, Francisca will present an analysis of the macroeconomic environment across our core markets, which is always key to understanding the context in which we operate. After her presentation, Roberto will go over the consolidated financial results and the operational performance of our local operations in detail.
Jose will then review CNB third quarter financial performance. To close, Roberto and I will conclude with some closing remarks, an update of the key milestone of the corporate structure evolution, and what we are seeing for what's left of 2026. Roberto? Sorry, Francisca.
Thank you, Andrés. I will provide an update on the macroeconomic environment from the U.S., Peru, and Chile. Volatility and uncertainty remain elevated amid the war in the Middle East and the midterm election in the U.S. Despite this, the U.S. economy showed a renewed strength and growth 3.4% quarter to quarter in the third quarter, supported by investment growing at a solid pace on the back of the global AI cycle and robust consumption. The labor market remains stable. The economy has shown higher productivity and structural shift that account for lower job creation needed to growth at the current pace. The unemployment rate stands at 4.2%. Now, let's discuss inflation and the evolution of the U.S. monetary policy. Regarding inflation, recent readings reflect some second round effects, with headline inflation at 3.7% and core inflation at 2.6%.
This has raised concern at the Federal Reserve in a context where inflation has remained above target for the past five years. Consequently, the Fed delivered a 25 basis point hike in September, bringing the target to 3.75%-4%. In line with a robust economies and continuously rising energy prices, we anticipate an additional 25 basis point hike in December. Regarding the yield curve, it has edged higher, driven by increasing energy costs, fears of high debt levels, and uncertainty. Looking ahead to 2027, the outlook remains subject to developments in the Middle East. If current conditions persist with no signs of a real resolution of the conflict, we could see additional hike rates next year. Now, let's transition to Peru. The Peruvian economy continued to growth around its trend level.
From January through August, economic expansion has averaged 3.2%, supported by domestic demand that remains dynamic despite the potential impact of El Niño. However, headline and core inflation have climbed to 5.3% and 4.6% year-on-year respectively. Inflation expectation now stand above the historical average at 3.1%. While we anticipate that this acceleration is primarily driven by supply-side factors, inflation is projected to close the year well above the Central Bank's target range. In response, the Central Reserve Bank of Peru has maintained a cautious stance, holding its monetary policy rate unchanged since September 2025. Nonetheless, this economic resilience paired with elevated inflation creates room for the potential hike rate by December. Now, let's move to Chile.
Turning to Chile, from January through August, the economy has averaged a contraction of 0.4%, weighed down by subdued mining activity tied to lower ore grades and softening domestic demand in line with a weakening labor market, where unemployment rates stand at 9.8%. Furthermore, the recent weakness has been exacerbated by adverse weather risk disruption stemming from El Niño phenomenon and high oil prices driven by the conflict in the Middle East. Nonetheless, we expect these negative readings to begin reversing towards the end of the fourth quarter. Moving to the Chilean inflation rate, headline inflation has picked up to 4.1% and is projected to close the year above 5%. Nevertheless, core inflation remains in line with its historical average, indicating that second-round effects have remained negatively, given limited room for a price path through aim economic weakness.
This environment presents a challenging landscape for the central bank, caught between subdued economic activity and inflationary pressures reinforced by the Chilean peso that has depreciated roughly CLP 80 year-to-date, reaching CLP 90.90 per dollar. In light with this, we anticipate an extended pause in the monetary policy rate, with the potential of rate cuts emerging towards 2027, as global oil prices normalize and energy pressure subsidize. With that, I will now hand over to Roberto, who will continue with the presentation.
Thank you, Francisca, and good morning, everyone. I'll begin with an overview of our performance, highlighting the key drivers behind the results for the period. Bci delivered strong results. We consolidated net income as of September, reaching $897 million, up 14% year-over-year, driven by healthy operating metrics. Asset quality remained sound, with the 90-day NPL ratio declining to 1.3%. Operating efficiency improved by 505 basis points, despite a high inflation period, reflecting disciplined cost execution and digital scalability. On the balance sheet, consolidated loans expanded 7.2%, while demand deposit rose 10.2%, reflecting our capacity to continue expanding above the system more effectively. As of September, our CET1 ratio stood at 11.01%, 201 basis points over regulatory minimum. Regarding our funding strategy, in early October, we successively closed a four-year CLP 2 billion bond issuance, roughly $110 million, in Mexico.
We secured favorable terms, given our strong credit profile in the region, allowing us to continue diversifying our international funding base. Our international operations continue acting as a growth engine to the group's balance sheet and bottom line. City National Bank generated $278 million in net income, maintaining a NIM above 3%. Bci Miami delivered a solid performance, achieving a 14% increase in top-line revenue and an 11% growth in assets. Last but not least, Bci Perú continues to escalate operation and improve profitability, with total loans for the first time reaching over $1 billion, and net income up 44% compared to the same period last year. Alongside our financial momentum, our customer experience metrics remain strong, reflected by an NPS of 76. While on the sustainability front, MSCI upgraded our ESG rating to AA, positioning us the highest-rated performance in the global financial sector.
Finally, the corporate structure evolution continues in line with our plan, and we will provide an update on this at the end of the presentation. Taking a look at our consolidated P&L, net interest and indexation income increased 11% year-over-year, driven by volume growth and pricing strategies. Alongside, net fee income continued to show improvement in line with our strategy, advancing 12% year-over-year. This allowed us to more than offset weaker net financial results due to the high volatility in these months, which impacted FX and trading positions. With NPL and asset quality indicators remain stable, credit loss expenses increased to $106.7 million. This variation was primarily driven by City National Bank reconciliation, although provision at City National declined year-over-year. Chilean local model standards and timing difference for a specific client exposure required additional provisions.
Secondly, we faced a tough comparison base at Líder Bci, as last year's provision releases did not repeat this period. Finally, a less dynamic macroeconomic environment naturally influences the forward-looking variables within our models, ensuring a prudent stance even as our core risk indicator remained stable. Turning to expenses. As we have consistently highlighted, efficiency remains a top priority. This is clearly reflected in an 8.1% year-over-year reduction in operating expenses. Income before tax increased 7.1% year-over-year, reflecting the positive performance across our different line of businesses. Higher tax expense during the quarter reflected both higher taxable income and monetary correction effects on equity, influenced by lower inflation during the period and the exchange rate assumption applied to our investment in City National Bank. As a result, quarterly net income declined 2.7% year-over-year, while nine-month net income remained approximately 14% above the prior year period.
With that consolidated perspective, let us now turn to Chile and take a closer look at the performance of our operations. Starting with our local loan portfolio, Bci total loans grew 6.3% year-over-year to $41.8 billion, tracking well against the 4.9% growth seen across the Chilean financial system. In the commercial segment, we continue to consolidate our leadership, reaching an 18% market share in commercial loans as of September 2026. This reflect our value proposition centered on operational excellence, technological innovation, and deep client relationships. It is worth noting that reported figures include the effects on our foreign currency-denominated commercial book. On the consumer side, we delivered a steady growth anchored by our focus on affluent segments, reflected in an 8.2% year-over-year growth. Our loyalty and benefit programs continue to deliver results, allowing us to deepen primary banking relationships and support higher credit card transactionality.
Finally, the mortgage portfolio was driven by UF variation in the period and further supported by the origination of state-guaranteed loan programs FOGAES. Moving to our margins. On the left, you can see our net interest margin reach 3.95% as of the third quarter, down 13 basis points year-over-year. While the margin benefit from higher inflation boosting our UF-indexed asset and positive commercial activity, this was ultimately offset by a tough comparison base, as the highly favorable result from our interest rate hedges in 2025 did not repeat this period. On the right, fee income continued to show solid momentum. Local net fees reached $ 105.7 million in the quarter, up 12.8% year-over-year. This growth was driven by both robust fee generation and expense optimization. On the revenue side, we benefit from higher credit card transaction volumes and a stronger asset management activity.
At the same time, we were able to lower payment processing and external origination cost, resulting in a 7.9% reduction in fee expenses. On this slide, you can see continued improvement in our local efficiency ratio, which reached 46.92% in the third quarter of 2026, a 449 basis point improvement year-over-year. As we highlighted, operational efficiency remains a core strategic priority. The performance you see today is the reflection of our continued cost discipline, transitioning to a simple organizational structure through ongoing process optimization and the productivity gains from a recent technology investment. This focus get reflected in operating expenses dropping 10% year-over-year when considering third quarterly figures alone, as well as in the 5.9% decline in expenses as of September.
We are seeing tangible benefits across the board, including a 12% expense reduction at Líder Bci, driven by AI and lower fraud losses, which helped us comfortably absorb necessary personal investments to support high-growth line of businesses. Overall, these results reflect continued progress in our operating efficiency without sacrificing the investments needed for our long-term strategy. On this slide, you can see the continued growth in our local deposit base, up 7.9% year-over-year and 2.7% quarter-over-quarter. Demand deposit increased 6.9%, while time deposit grew 8.5%. Our loan-to-deposit ratio closed the quarter at 134%. On liquidity, as shown on the lower left side, both our LCR and NSFR remain comfortably above regulatory requirements. Moving to capital.
On the right chart, our consolidated total capital ratio reached 14.99%, providing a 249 basis point buffer over the regulatory minimum, while our CET1 ratio stood at 11.01% with a 201 basis point buffer. The evolution in CET1 as of September primary respond to a strong commercial momentum, with a 6.8% year-over-year growth in risk-weighted assets that outpaced capital generation. Furthermore, this ratio was impacted by the higher regulatory deduction following the end of Basel III transition period, as well as a 34 basis point headwind from unrealized losses on our available-for-sale portfolio, driven by higher US Treasury yields. We would like to highlight that we see this as a transitory effect, given that at the quarter close, the 10-year US Treasury traded at 5.3% levels, and as today, we are already looking at a 4.9%.
Together, these metrics reinforce the strength of our funding, liquidity, and capital position, while preserving the flexibility to support future growth. Moving now to the evolution of our domestic loan portfolio and key risk indicators. Total loans continued to grow during the period, while asset quality indicators remained broadly stable. The NPL ratio stood at 1.71%, while the loan loss provision ratio was 1.77%, increasing to 2.3% when including additional provisions. The evolution of this indicator reflects portfolio performance, along with our underwritten standard, ongoing monitoring, and risk management processes. We will now look at each portfolio evolution, starting with the commercial segment. In the commercial portfolio, we continue to see solid loan growth, supported by disciplined origination across the loan book. The NPL ratio stood at 1.42%, improving 49 basis points year-over-year, while the loan loss provision ratio reached 1.47%, rising to 1.97% when including additional provisions.
These indicators reflect a combination of consistent underwriting standards, active portfolio monitoring, and a well-collateralized exposure base, particularly within the SMEs segment. The improvement in delinquency also reflects the resolution of a specific client exposure that was charged off during the previous quarter and is therefore no longer classified as non-performing. Overall, the portfolio continues to show balanced growth and stable asset quality indicators, supported by prudent risk management. Next, we turn to the residential portfolio. In the mortgage portfolio, the 90-day NPL ratio closed at 2.11%, up 7 basis points year-over-year. While broader macroeconomic conditions can affect household payment capacity, our recent adjustment in origination policies, specifically tightening loan terms for riskier segments, are already yielding positive results in our NPL behavior. We continue to monitor this closely, focusing on early identification and proactive client management.
At the same time, we are seeing strong growth leveraged by the FOGAES government guarantee program. This program has been a key driver, representing 37% of our cumulative new origination this year, which, given the included requirement, allows us to grow in line with our risk appetite. We have currently captured 17% market share of this program, positioning us among the top banks in the system. Looking ahead to 2027, we expect to sustain this momentum, leveraging FOGAES and complementary government incentives in discussions to continue expanding our loans. Now, turning to the consumer portfolio, this slide shows the evolution of our 90-day NPL ratio across the different components of the portfolio. The orange line shows the overall consumer NPL ratio, which reached 2.58% at the end of the period, while the green line shows the evolution of the Líder Bci portfolio, ending the quarter at 4.44%.
Here, it is worth noting that the new credit card minimum payment regulation took effect in July, which began gradually pushing the installment payment that, alongside current macroeconomic conditions, modestly contributed to this NPL evolution. We are closely monitoring our portfolio under our prudent risk approach that has allowed us to maintain good asset quality metrics relative to the system. On provision, the loan loss provision ratio stood at 7.81%, increasing to 9.8% when including additional provisions. Overall, the portfolio has remained relatively stable, while origination remained focused on the customer profiles we highlighted earlier, particularly within Bci affluent customer segment. Origination in this segment is supported by target campaigns and forward-looking data analytic models, helping us maintain growth in line with our risk appetite across both Bci and Líder Bci. Moving now to our international platform, we have also seen good metrics across businesses.
I want to highlight the strategic role of our subsidiaries and business units, which play a significant role in our value proposition as well as driving diversification across operations. On the international front, our platform continued to consolidate itself as a key pillar for expansion. We are seeing strong momentum in our internationalization strategy and geographic footprint, with Bci Perú achieving significant scale, surpassing the 1 million mark in loans and demonstrating sustained growth. Similarly, Bci Miami continues to steadily expand its operation and strengthen its asset base, consolidating a 14% year-over-year increase in income before taxes, with an efficiency ratio under 40%. Regarding our local operation, from our wealth management business to our retail ecosystem, we continue to see solid and resilient performance. These units not only contribute to the bank's profitability, but they also deepen relations with our clients, capturing valuable synergies that strengthen our competitive position.
To discuss City National Bank's performance during the first quarter, I will now turn the call over to Jose Marina.
Thank you, Roberto. Good morning, everyone. My name is Jose Marina, and I am the CFO of City National Bank. I am pleased to be here this morning to share highlights of our strong performance during the first nine months of the year. As I will discuss in more detail, our earnings continued their upward trajectory, reflecting disciplined execution of our strategy, including solid loan growth fully funded by robust deposit growth. In particular, I would like to point out the following highlights. Our loan balances increased by $535 million, or 2.6% quarter over quarter, and $1.3 billion, or 6.8% year over year. We continue to focus on high-quality loans with strong spreads and solid depository relationships. Our client deposits grew by $332 million, or 1.6% quarter over quarter, and by $1.9 billion, or 10.1% year over year.
DDAs decreased by $200 million, or 3.8%, compared to the previous quarter during my ongoing client activity, but remained $103 million, or 2.1% higher year to date. Importantly, year-to-date client deposit growth has outpaced loan growth by approximately one and a half times, reinforcing our strategy to position City National Bank as a leading deposit-gathering bank in the state of Florida. Our net interest income and margin continued to expand for the 11th consecutive quarter, and in Q3, our NIM reached 3.16%. NIM increased by 16 basis points quarter over quarter, or 8 basis points after normalizing for one-time items. Year to date, NIM is 44 basis points higher year over year. Our earnings continue their strong trend, growing $89 million, or 47% year over year, and by $7 million, or 7.5% quarter over quarter.
We reached $100 million in net income this quarter for the first time in our history and generated an ROE, excluding goodwill amortization, of 13.08% for the quarter. These results demonstrated our market reputation built over the last 80 years, our relationship-centric model, strong culture, and continued success in executing our key strategic vision. Our client deposits increased by $1.9 billion, or 10%, for the first nine months of the year, including a $103 million, or 2%, increase in DDA balances. It is important to highlight that year-to-date deposit growth exceeds our loan growth. Additionally, our client deposit growth outperformed the banking industry as a whole by approximately 1.7 times. Our strong client deposit growth has enabled us to reduce broker deposits by $1.1 billion year to date, lowering our utilization of wholesale funding.
Our quarterly cost of client deposits increased by 4 basis points compared to the previous quarter, primarily reflecting growth in interest-bearing deposits. As you know, the Federal Reserve increased the Fed funds rate by 25 basis points in September. The increase had a limited impact in the quarter, and we expect further modest NIM expansion in the fourth quarter. We will continue executing initiatives to optimize our cost of funds and maintain disciplined loan and deposit pricing to support further NIM expansion. Non-interest-bearing deposits also represent a healthy 22% of our total deposits. Our assets reached $29.5 billion in the third quarter, approaching the $30 billion mark, with a strong loan-to-deposit ratio of 92%. We remain very well capitalized, as evidenced by our total risk-based capital ratio and tier 1 leverage ratio, which were 15.8% and 11.5% as of September 30, respectively.
Unrealized losses in our investment portfolio increased by $392 million from $284 million quarter over quarter, reflecting the approximately 136 basis point increase in the five-year US Treasury rates during the quarter, although the five-year US Treasury has declined by over 30 basis points since the end of the quarter. Total loans increased by $1.3 billion, or 7%, in the first nine months of the year, and by $535 million, or 3%, quarter over quarter, as shown on the right-hand side of the slide. Our loan growth continues to be led by C&I loans, which increased by $589 million, or 10% year to date, and now represent 32% of total loans, while CRE represents 47% and residential the other 21% of our loan portfolio.
We have been highly selective when it comes to lending, not only from a credit risk and spread perspective, but also prioritizing opportunities with full relationships, which enhances long-term client value and earning sustainability. This quarter, our NPL ratio declined by 5 basis points to a very strong 0.76% of loans. More importantly, our strong credit culture and low-risk appetite are reflected in our minimal net charge-offs of only 12 basis points year to date, significantly lower than the 24 basis point average among peers as of the last quarter. ACL coverage remains stable, representing 1.09% of total loans. Overall, our already strong asset quality ratios continue to improve during the third quarter.
Turning now to our profitability, I would like to emphasize the positive trend in our net income after taxes, which increased by $7 million, or 7.5% quarter-over-quarter, and $89 million, or 47% year-over-year. This growth was driven primarily by an expansion in net interest margin, which we will expand upon in the upcoming slides. Fee income also increased by $8.3 million, or 9% quarter-over-quarter, reflecting continued progress in our efforts to diversify and enhance our fee base. These factors contributed to operating income increasing by $127 million, or 21% year-over-year. This resulted in ROA, excluding goodwill amortization, of 1.4% for the quarter, and an ROE, excluding goodwill amortization, of 13.08%. Our core efficiency ratio also improved to 38.6% in the quarter.
As we have shared with you over the last few calls, we have implemented several strategic actions through Project Win to further strengthen our balance sheet and accelerate earnings growth. Additionally, we are focused on expanding our product offering to increase relationship expansion and augment our fee generation. Lastly, we continue to drive organic net interest margin expansion through disciplined pricing across both loans and deposits. On the left side of this slide, you can see our net income increased by $7 million, or 8% quarter-over-quarter. This improvement was primarily driven by a $17 million increase in net interest income, reflecting a 16 basis point expansion in net interest margin, or 8 basis points after normalizing for one-time items, as we continue to maintain discipline on both loan and deposit pricing. Non-interest expenses decreased by $3 million, mainly reflecting lower professional fees.
These were partially offset by a $7 million increase in provision expense that was primarily driven by higher loan growth, a $3 million decrease in fee income due to lower swap fees, and a $3 million BOLI tax penalty as we completed the restructuring of our BOLI holdings. On the right side, we show our net income improved by $89 million, or 47% year-over-year. This increase was primarily driven by $119 million of additional net interest income, as our margin expanded by 44 basis points year-over-year. Fee income also contributed positively, increasing by $8 million. Loan loss provisions were $11 million lower year-over-year, reflecting the continued strong performance of our loan portfolio. This was partially offset by $13 million of additional expenses, particularly driven by investment in personnel as we continue to execute Project Win.
This slide illustrates the expansion of our net interest income and margin for the last 11 consecutive quarters. Our net interest income increased by $17 million quarter-over-quarter, with our NIM expanding by 16 basis points, or 8 basis points, excluding one-time income from interest recovered from non-accruals and prepayment penalty fees. This growth was driven by an 18 basis point increase in yield on earning assets, partially offset by a 2 basis point rise in our cost of funds. This NIM expansion is a result of several strategies executed during the last couple of years, which includes obtaining strong spreads on new loan originations and renewals, with the commercial spreads on new loan originations averaging close to 300 basis points over the last three years. It is also the result of our strong deposit growth, coupled with prudent deposit cost management in this uncertain rate environment.
This strong core deposit growth enabled us to reduce our wholesale funding ratio to 16%, as compared to 19% at the beginning of the year. Looking ahead, our balance sheet positions us to benefit from further rate increases, while continued cost of funds discipline will support additional NIM expansion. One of our key strategic priorities is the expansion and diversification of our fee income. This slide demonstrates the strong results we have already delivered in this regard. Non-treasury management fees have grown meaningfully as a share of total income, increasing from 41% in 2022 to 58% in 2026, reducing reliance on any single category. Non-treasury management fees include services recently launched or currently being implemented, such as insurance commissions, our treasury distribution desk, capital market capabilities, wealth management, and the sale of residential and SBA loans.
Within non-TM fees, the largest contributors are our treasury distribution desk at 25%, the sale of residential and SBA loans at 12%, and wealth management fees at 11%. The improved mix is further evidenced by fees as a percent of average assets rising from 42 basis points to 47 basis points. Overall, these trends demonstrate the successful execution of our strategy to build a larger and more diversified key income base. As a reminder, Project Win is our five-year strategic plan designed to deliver profitable, scalable, and diversified growth. As this slide highlights, we are now in year two of execution, and our results demonstrate strong progress across all five strategic objectives.
We just reviewed our progress under our strategic plan a week ago during CNB Day, so I will just reiterate today that we are focused on executing our strategic plan so that we can sustain the strong results that we've been reporting. In conclusion, the third quarter results reviewed with you this morning demonstrate the continued momentum and scalability of Project Win in its second year of execution, with our year-to-date performance reinforcing confidence in our ability to deliver sustainable, profitable, and diversified growth through the remainder of 2026 and beyond. With that, I will turn it back to the Bci team for closing comments. Thank you for joining us this morning.
Thank you, Jose. Some closing remarks. We delivered consolidated net income of $897 million, up 14% year over year, reflecting the strength and diversification of our business model and the continued execution of our strategic priorities. First, we focused on driving higher client reciprocity. In wholesale banking, we continue to leverage our 360 Connect platform, which, alongside our holistic product and service offering, enable us to strengthen client relationships and successfully support both loan and deposit growth. In retail, our enhanced value proposition and loyalty program let us grow at 8.2% year over year, contributing to higher engagement, which ends up accompanied by deposits and fees. Our finance and wealth management division also delivered a strong result across sales and asset management.
This momentum was reflected in growth in long-term mutual funds and demand deposits, further strengthening our funding and liquidity profile, while customer satisfaction remained strong with an NPS of 76. Second, maintaining prudent risk and balance sheet management. These results were underpinned by a strong risk culture, forward-looking analytics, disciplined portfolio management, and a resilient balance sheet. Proactive risk management and stable asset quality trends kept NPL at 1.3% and cost of risk at 0.6%. Third, continuing our successful international expansion. Our international platform delivered solid performance across City National Bank of Florida, our Miami operations, and Peru, contributing positively to consolidated results and reinforcing the value of our diversified geographic footprint. Fourth, reaffirming our commitment to efficiency. Our continued focus on efficiency and disciplined execution of our strategy drove a 505 basis point improvement in our efficiency ratio.
At the same time, our CET1 ratio closed at 11.01%, while our sustainability efforts were recognized with an MSCI ESG rating of AA. With that said, let us now review our full 2026 guidance. As highlighted throughout this call, results across our businesses remain solid, reflecting the resilience of our operations and tracking well against our previously disclosed targets for loan growth, fees, asset quality, and efficiency. Looking ahead, there are two key factors to keep in mind as we approach year-end. First, we are raising our net income growth target to City National Bank from 35% to 47%, as Jose and Jorge mentioned last week. This essentially analyzes our strong year-to-date performance through the remainder of the year, as we do not foresee any significant impacts that will alter this trajectory. Second, there are tax-related dynamics to consider as we look towards 2026 close.
The new Chilean tax reform will generate a one-time charge-off of $35 million, although the new framework is expected to lower our effective tax rate in subsequent years. In addition, we expect some non-operating tax volatility related to exchange rate movements and the monetary correction of our investment in City National Bank. Bringing it all together, Bci remains well-positioned to deliver another strong year. With income before tax up more than 20% year-over-year, we are maintaining our ROE target of around 15%, while successfully navigating non-operating effects in a highly volatile environment. I will hand the call back to Andrés for a brief update on our corporate structure evolution before move to Q&A.
Thank you, Roberto. As you can see on the screen, Bci Group has executed in line with the announced timeline and achieved key milestones throughout 2026, especially in recent months. As disclosed, this corporate structure evolution consists of five main steps: incorporation, contribution, invitation, division, and finally, merger. I am pleased to report that we have already completed the regulatory dependent steps. We have advanced and conclude the approval process with the CMF in Chile, the Fed in the U.S., and the SBS in Peru. Steps one and two, incorporation and contribution, are now fully executed. We successfully completed the constitution, incorporation, and securities registration of Bci Group, and established its initial governance by designating a provisional board and appointing José Luis Ibaibarriaga as CFO of Bci Group. Additionally, our controlling shareholder made its initial contribution.
Out of its total 55.36% stake in Bci, Empresas Juan Yarur contributed 93 million shares, equivalent to 42.94% of Bci's capital to Bci Group. They retain the remaining 12.42% ownership to participate in the upcoming process with the other shareholders. We are currently working in step 3, the invitation phase. To facilitate this, Bci Group recently approved a capital increase for the issuance of incremental shares, 124.7 million, to exactly match the share number of Bci. These new shares will be paid exclusively in kind by contributing Bci shares, either through a tender offer or the following direct exchange, guaranteeing a strict one-to-one exchange ratio and equal conditions to all Bci shareholders. Complementing this, these new entity shares were officially registered to trade on the local stock market under the ticker code Bci Group. Looking ahead to step 4, the division will separate CNB from the Chilean bank.
We expect to complete this division by the first half of 2027. At that point, Bci Group shareholders will begin to capture tangible benefits from this corporate structure evolution. Finally, the process will conclude with step 5, the merger, which will entail the final corporate structure simplification. We are confident that this new structure will deliver growth opportunities and long-term value for all our shareholders. Finally, we invite you all to visit our new website of Bci Group, www.bcigroup.cl, to be in line with our evolution process. With that, thank you very much for joining us today. We are now ready to open the Q&A session. We have the first question from Daniela Miranda from Santander Investment. Hi, Daniela. Daniela? All right. We continue with Juliana Ohara from Goldman Sachs. Hi, Juliana. How are you?
Hi. Hi, Andrés. Hi, everyone. Thank you for taking my question. I was wondering if you already have early expectations into 2027. You clearly did very well this year, but next year, with inflation softening a bit in Chile, but GDP growth accelerating, if you could share some more colors on what you're seeing for the credit demand, if work should be driven, like you expect it to come from the commercial loans, and if that could impact a bit your NIM? Thank you.
Thank you, Juliana, for your question. We are in the middle of doing the budget for next year, so the complete guidance for 2027, we will give it in the next conference call. But if you want, Francisca could give some color regarding the macroeconomic perspective from Chile for next year, and I will complement a little bit regarding the impact of those macroeconomic effects in our business.
Hi. As you said, we're expecting next year to be a better year in growth. We're expecting to growth around 2.5%-3%, so that will increase some of the lines. Also, the inflation, we are now expecting to end the year at 3.4% at December of 2027, a bit above the Central Bank target, but still in line with expectations. One part that is really important is that the consumption side, it will continue a bit restrained due to the unemployment rate that will stand in a high levels and could end next year around 8.7%.
To give some insights from those numbers to the bank, Juliana, as Fran mentioned, this year in the Chilean economy was lower than our expectation. We are kind of optimistic for next year, given all the reforms that the government have approved. We expect that those reforms will foster the investments in different industries. Given that we are the number one bank in the commercial portfolio and in the corporate businesses, we expect to leverage on that position and to continue our healthy growth in our loan portfolio in a economic environment that we think is going to be much better than this year, with this reform impacting our business lines and allowing us to grow a little bit more than that we growth this year.
Super clear. Thank you. Just one quick follow-up on that one. Can I assume that your loan growth will accelerate from this year, so maybe reaching high single digits, low double digits?
Yeah. As I said earlier, the full guidance, we will give it the next conference call, but it should be a little bit better than this year growth. The final number I will give you on on January call.
Okay. It's clear. Thank you, Roberto. Thank you, Fran.
Thank you, Juliana. We have come back again, Daniela Miranda from Santander Investment. Hi, Daniela.
Hi, everyone. Sorry about before, and thanks for taking my question. Just a very quick one from my side. I think it's to Jose Marina mostly. Following the strong margin expansion at CNB, you have previously mentioned that you're still repricing the lower yield loans there. My question is, how much of the margin expansion this quarter would you say is still coming from this repricing? In other words, what percentage of the loans are still to reprice, and how much additional upside do you see going into 2027?
Good morning, Daniela. As you saw, I mean, we increased our NIM this quarter by 16 basis points. However, there were some one-time items. The real increase was about 8 basis points. We are forecasting model, a margin expansion for next year, but not at the same levels that we've seen the last couple of years. This year, you saw that we've increased year-over-year by 44 basis points. A year before that by almost, in 2025, we increased it by almost 60 basis points. Next year, we're looking at more modest margin expansion. We already see most of that take place. We're looking at about 10 basis points. I think we could do better than that. We get more prepayments on lower margin loans, et cetera. We've had strong margin expansion the last couple of years.
A lot of that repricing has taken place. There will be some, but we're going to see more modest margin expansion next year, closer to 10 basis points, as I indicated.
And a quick follow-up, if I may. What about your expectations for Fed rates?
Yeah. As Roberto has indicated, we're going through the budgeting process. We're assuming another Fed rate hike in December. We're looking at two to three hikes during 2027. We have a very neutral balance sheet. We do think that we'll continue to increase our NIM through the rate hikes. As I said, we have a neutral balance sheet. 80% of our commercial loan originations over the last two years have been floating. Over 60% of our loan portfolio is floating. So I think we are well positioned.
Perfect. Thank you very much.
Thank you.
Thank you, Daniela. Next one is coming from Daniel Mora from Credicorp. Hi, Daniel.
Hi. Good morning. Thank you for the presentation. I have a couple of questions. Maybe I will ask the first one and then the second one. The first one is regarding loan growth. You have been successful growing above industry and main competitors, but I would like to understand if you believe that next year, given the reforms already approved and the expansion in investment, higher GDP, you expect competition to be tougher and maybe pressuring some of the spreads? I would like to understand if the decrease in the CET1 for the Bci local operations will also pressure the level of loan growth for Chile. Thank you so much.
Okay. Thank you, Daniel. Regarding the loan growth in Chile, as I mentioned before, the final guidance we will give it in January. But overall, as you said, we expect, given these reforms that the government has put in place, to see a faster growth in the industry here in Chile. Probably this will tighten a little bit the spread, but as you know, we manage our client relation not only but our loans, but seeing the whole relation and the whole profitability of the client, taking into account also their deposits, and fees, and services that we gave to the client in order to optimize the RORAC that we manage. So, even though we can see a little bit spread tightening, we still see room to improve our final ROE, as we have mentioned in the presentation.
We still see spaces in some lines of our P&L in order to close or to increase our profitability, especially in gaining more market shares in deposits, especially in the consumer deposits, increasing our fees by complementary services such as wealth management, insurance, corporate finance in the wholesale world, and then continue improving our cost of sales and our efficiency ratio. We expect that all that will contribute in order to increase our ROE for next year. I don't know if that answered your question you have, and you have an-
Perfect. Thank you. Yeah, no, perfect. Thank you so much. I was just muting myself. Thank you so much. That's very clear. The second question is a very quick one regarding cost of risk. Despite the improving overall NPLs, the cost of risk increased to 0.7 this quarter, and I would like to understand how much of this increase was driven by one-offs in this quarter or the deterioration of the consumer portfolio, or just the loan growth. Because if we compare to the last 12 months average, it has been around 0.5%, even though it's a really low base. The 0.7 goes against the recent guidance of maintaining cost of risk around 0.6. So, I would like to understand if this is the new normal, it will continue increasing given the exposure to consumer loans, or we just normalize after this quarter? Thank you so much.
Yeah. Thank you for your question, Daniel. Regarding risk, as I mentioned in the presentation, when you see the main behavioral drivers in the different portfolios, you can see that in most of them, we see lowers NPL, lowers deteriorated portfolio within each portfolio. So, main of the effects that you see this quarter has to do with the base, as you mentioned. Last year, third quarter, we have some one-timers. First, regarding the consolidation of City National Bank in Chile. When you see, as Jose mentioned, the City National Bank cost of risk is declining year over year, but at consolidation, there are some one-time effects because of the risk difference between the Chilean norm for provision with the American norm for provision that makes that last year we have a liberation of provisions, and this year we have a cost on that reconciliation.
There is a difference in base. We have another difference in base regarding Líder Bci. In Líder Bci, the third quarter last year, we revised our provision models, and that allow us to liberate also provisions, and this year is business as usual, so we do not have that one-timer. What we do see in the margin, as we mentioned in the consumer portfolio, is that after July, when we saw the implementation of the minimum payment in credit card, we saw a little bit more NPLs. Yeah. But we are closely monitoring that. As we have mentioned last calls, over the last year, we have been building a consumer portfolio that is much more resilient for the economic cycles that we have a couple years ago.
Even though, as Francisca mentioned, the unemployment is close to 10%, that is really high, when you see our NPLs are more or less stable and still behaving better than that of our competition. Yeah, in the margin is a little bit more of risk in that portfolio, but overall, we see great numbers in our risk management.
Perfect, Roberto. Very clear. Thank you so much.
Is that okay, Daniel?
Yeah.
Okay.
That is perfect. Thank you.
Thank you, Daniel. Last one from Jorge Pérez from Itaú BBA. Hi, Jorge.
Hi, guys. Can you hear me? Yeah, perfect. Thank you.
Yes, sir.
Yeah.
Just one question from my side. You already mentioned the tax rate impact that you could have in the fourth quarter, given the exchange rate. Could you remind us the tax rate sensitivity to have in mind a potential impact in terms of result for the 4Q? Also, if we assume that the tax rate could be a headwind also for 2027, given the effects continue to remain very high, and how we should think on this? Is end of period compared to end of period? Is average effects? That is. Thank you.
Yeah. Thank you, Jorge, for your question. Yeah, as we mentioned, there are two main effects regarding our effective tax rate for the coming month. First, we have to recognize a $ 35 million tax cost because of the tax reform of the government that we will recognize now in October. Then, as you know, our investment in City National Bank is recognized in our books in pesos, but readjusted in dollars. So, when the exchange rate increases, we have an attributable income, so we have to pay taxes for that increase in exchange rate. Our sensibility is more or less USD 4 million for each 10 pesos increase in the exchange rate. So, I would love to say you or to guide you with the number, but as you know, the exchange rate has been very volatile.
For us, it's very hard now to put an effective tax rate for year-end, and also for next year, because as Fran said, if the tension in Middle East, it's solved, well, we could see again from that a reduction in our tax rate. But if it stay as it is, we probably will see a tax rate more flat. So, it will depend on the movement on these monetary corrections.
Perfect. Thank you.
I don't know if Jorge that answered the question.
Yeah, very clear. Thank you.
Okay. Thank you.
With that, we can conclude this conference call. As always, thank you very much for all of you, and we are always available as the IR Bci team. Thank you very much and have a good one. Have a very good day. Bye-bye.
Thank you very much.