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Market Report, "Chile Commercial Banking Report Q3 2012", Published

Recently published research from Business Monitor International, "Chile Commercial Banking Report Q3 2012", is now available at Fast Market Research


Boston, MA -- (SBWIRE) -- 07/19/2012 -- BMI View: We maintain our constructive outlook on the Chilean banking sector, thanks to its low level of systemic risk and Chilean banks' strong balance sheets. While the combination of regulatory changes and a slowdown of economic activity in 2012 could hurt banks' profitability in the short term, we believe the sector can still benefit from large expansion opportunities in consumer-loans and high-end services in the medium-term. The Chilean banking sector remains one of our favourites in Latin America. This view is underpinned by our expectations of solid credit growth in the country over the next few years, declining level of delinquencies in banks' loans portfolios, and sizable opportunities for the industry to expand in the consumer-loan and high-end services segments. While we believe that a moderation in Chile's economic growth in 2012 - we forecast Chilean real GDP to grow by 4.7% in 2012, down from an estimated 5.9% in 2011 - could see credit growth cool down slightly, we maintain a positive outlook on the sector, on the back of Chile's solid regulatory environment and low level of systemic risk. A Healthy Credit Growth Story Strong economic growth in Chile in 2011 has supported a steady expansion of bank assets, which in December increased 16.7% y-o-y reaching 111% of GDP. Client loans continued to expand rapidly in 2011, reaching 78.4% of GDP in December 2011, from 72.8% of GDP a year earlier. The rapid growth in Chilean banks' loan portfolios, however, has not resulted in a deterioration of credit quality. On the contrary, the share of non-performing loans (NLPs), already one of the lowest in the region, further declined to 2.3% in December from 2.7% a year earlier. This contrasts with trends we have witnessed elsewhere in the region, for example in Brazil, where continued growth in client loans has also seen an uptick in delinquencies in 2011. Source: SBIF, BMI As we have highlighted in the past, pending regulatory changes could cause consumer credit to moderate somewhat in 2012. In September, the Chilean government submitted to Congress a bill mandating a reduction in the maximum interest rate that can be charged on some consumer-loans. At present, banks and credit-card operators can charge a maximum annualized interest rate of 52.1% for peso-denominated loans with maturity up to 90 days and worth less than 200 Unidades de Fomento (UF), the local inflationadjusted accounting unit. the proposed measures are approved, the interest rate ceiling may be lowered to below 40%, according to preliminary estimates, which will likely result in the exclusion of some of the riskiest and lowestincome borrowers from the formal credit market. In our view, this could have negative repercussions on banks' profitability and, more broadly, act as a drag on credit growth in the short run. Nevertheless, we maintain a constructive outlook on the country's banking sector as solid macroeconomic fundamentals will continu

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