Banco de Chile wants number 1 spot, while keeping up profitability

- Thursday, February 3, 2011

Banco de Chile wants number 1 spot, while keeping up profitability

Chile's second largest lender, Banco de Chile (NYSE: BCH), expects to maintain profitability levels seen in 2010 over the next few years and to gain market share in retail lending, as it has set a goal of becoming the country's number one bank, CFO Pedro Samhan told a conference call.

"Our medium-term strategic objective is to position Banco de Chile as the leading financial institution in the country in terms of loans, profitability, efficiency and service quality," he said.

Banco de Chile recently approved a US$500mn capital increase, as it prepares for increased loan demand amid a growing economy and aims to maintain its profitability and keep its capital ratios healthy, Samhan said.

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LOAN GROWTH AHEAD

The bank expects to outpace the system's growth by expanding its loan portfolio 48% by the end of 2013, which represents roughly US$13bn in additional loans.

Banco de Chile grew lending 9% last year to 14.4tn pesos (US$29.8bn), gaining four basis points of market share to reach a 19.2% stake. Santander Chile (NYSE: SAN) is the country's largest bank with a 20.9% market share as of end-2010.

"Our growth will be very significant, always keeping the focus on the retail market. For us, it's important not only to increase market share [overall], but also to gain market share where our strategy is focused," Samhan said.

ROE, CAPITAL INCREASE, PROVISIONING

Banco de Chile saw 2010 earnings rise 46.8% compared with the previous year for a 24.7% ROE.

"When we make the capital increase, obviously the ROE will decrease a little, but I don't think it will be relevant," Samhan said.

In 4Q10 the bank charged 43bn pesos before taxes in extraordinary expenses to anticipate the impact of new provisioning rules for individually evaluated loan portfolios and the setting-up of countercyclical allowances. Adjusted by this impact, 2010 earnings grew 65% to 417bn pesos for a 27% ROE.

The bank's controlling investment vehicle - LQIF, 50-50 owned by local holding company Quiñenco and Citi (NYSE: C) - decided to forego its preferential option to subscribe to the capital increase to give "greater liquidity" to the shares.

Banco de Chile will on March 17 ask shareholders to distribute 70% of the bank's 2010 profits and capitalize the remaining 30% by issuing paid-up no-par value shares at 66.8 pesos each.

If the bank keeps this policy over the next three years, its capital ratio will be near 10% by 2013, the minimum required by local regulator SBIF, Samhan said.

To read the bank's full earnings release, go to this link