Financial Services Advisor

Felipe Carvallo Mendoza, vice president and senior credit officer in the Financial Institutions Group of Moody’s Ratings: “Chilean banks remain strong, with ample profitability, improving capitalization and deep core funding that is supported by strong, albeit pressured, government institutions with a long history of prudent macroeconomic and fiscal policymaking. Chile’s largest rated banks reported lower profitability in the third quarter, in line with reduced net interest margins on a smaller variation of the inflation-linked peso and less income from relatively higher-yielding government securities. High interest rates will continue to limit loan growth and a substantial decline in problem-loan ratios. Cuts to interest rates have resulted in a drop in funding costs, but interest rates remain high, which is limiting credit demand and loan growth. Although delinquency ratios continued to increase in the quarter, banks maintain ample loan-loss reserves. More stringent Basel III-like capital requirements will ensure…”