Fitch: Economic Slowdown Holds Down Chilean Bank Results

Santiago & NEW YORK--(BUSINESS WIRE)-- Chilean banks' first quarter results slowed on weak economic growth but performance remains within a range that maintains Fitch Rating's stable Outlook for the sector. The banks' net income increased slightly, by 2.1% yoy, as loan growth slowed and net interest margins declined, according to the country's regulator.

Loan growth slowed in all business segments. Results were also hit by increased loan loss provisions and declining financial operations and currency exchange. However, a 50% reduction in the corporate tax rate balanced out those unfavorable factors.

The Chilean banking sector has demonstrated more predictable results than other countries in the region. However, Fitch expects loan growth and asset quality will continue to weaken in 2016 on rising unemployment, which will raise credit costs. We believe the banks are successfully balancing current growth needs with improving long-term capital adequacy that will be required under Basel III when it is implemented in 2019.

Most Chilean banks' medium- and long-term assets and liabilities are denominated in inflation-adjusted pesos using the Chilean Unidad de Fomento. Inflation moderated to 0.7% from 1.1% in 4Q15, reducing net interest margins for most banks.

The banking system's gross loans, excluding lending by foreign subsidiaries, increased by 7.9% in 1Q16, slightly below the growth in the previous year of 8.3%, and well below a 11.8% CAGR in the last five years. Growth in residential mortgages and consumer loans was strong while commercial and corporate loan growth was modest.

The sector maintains a low level of nonperforming loans (NPLs), which rose by just 10bp to 1.98% in the first quarter. However, we expect NPLs to rise as the economic slowdown continues, mainly due to pressures on lower quality loans and slower loan expansion that will continue in 2016. Total loan loss reserves, including additional reserves over the regulatory requirement, remain ample.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160505006408/en/

Fitch Ratings
Abraham Martinez
Director
Latin American Financial Institutions
+56 2 2499 3317
or
Santiago Gallo
Director
Latin American Financial Institutions
+56 2 2499 3320
Santiago, Chile
or
Rob Rowan
Fitch Wire
+1 212 908-0652
New York
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
[email protected]

Source: Fitch Ratings

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