Fitch: High Credit Costs to Pressure Chilean Banks

NEW YORK & SANTIAGO, Chile--(BUSINESS WIRE)-- Slow economic growth and rising credit costs will offset gains in commercial and personal loans among Chilean banks and pressure 2016-2017 earnings, says Fitch Ratings. Chilean banks' 2015 earnings declined for the first time since 2009, mostly due to higher corporate tax rates and the country's economic slowdown.

Chilean banks earned CLP2.209 billion (USD3,063 million) in net profits in 2015, down 11% yoy, according to data released by Chile's banking regulator. Net income was hit by higher corporate taxes deferred by tax reform introduced in 2014. However, operating performance was broadly stable.

Most Chilean banks' medium- and long-term assets and liabilities are denominated in inflation-adjusted pesos using the Chilean Unidad de Fomento (UF). Inflation in 2015 fell slightly, reducing net interest margins modestly for most banks. But operating income was up 4% yoy due to stable net interest revenues (+0.9%), improved net fees (+7.9%) and decreasing net financial operations (-18.5%), so pre-tax income was down only 2%.

The banking system's gross loans, excluding lending by foreign subsidiaries, increased by 8.3% in 2015, well below the growth in the previous year of 10.4%, and a 11.8% CAGR in the last five years. The strongest growth was in mortgages (15.0%) and consumer loans (11.2%), while the expansion in commercial and corporate loans was a modest 6.4%. Fitch expects loan growth and asset quality to be weaker in 2016, which will raise credit costs, as the economy continues to slow and unemployment expectations and exchange rate volatility rise.

The sector maintains a low level of nonperforming loans (NPLs). Nevertheless, NPLs are likely to rise due to the continuation of the economic slowdown. They declined to 1.9% in 2015 from 2.1% a year earlier. This trend reflects the conservative credit risk appetite from banks after important changes in the regulatory framework, which began in 2011. Total loan loss reserves, including additional reserves over the regulatory requirement, remain ample, with coverage of 1.6x the total past-due loans over 90 days.

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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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
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Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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