Consumer loans not expensive, but margins high compared with peers - Fitch

Friday, April 15, 2011

While consumer loans are not more expensive in Chile than in other countries, local banks could see narrower margins as the country is a more mature market than the rest of Latin America, Fitch senior director Eduardo Santibáñez told BNamericas.

Recent remarks by central bank president José de Gregorio about Chilean banks charging inexplicably high rates for consumer loans sparked controversy in the local market.

"I don't have a convincing explanation, because it's hard to explain average rates on consumer credits in the range of 30% or more," De Gregorio told local banking association ABIF, according to a copy of his speech published on the central bank website.

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"I don't think loans in Chile are more expensive than in other Latin American countries with similar development models such as Brazil, Peru or Colombia - countries in which economic and consumer expansion have outpaced Chile in the last three years," Santibáñez said.


While Fitch does not have metrics to compare consumer loan margins for Latin American countries, on a global scale Chile ranks about the lowest in the region.

"However, one would think that Chile could see higher levels of competition and narrower margins given the fact that it is a more mature market compared to the aforementioned countries. Chile is also by far the country with highest levels of banking penetration in the region and offers the longest loan tenors," Santibáñez noted.

Other factors that make it hard to understand the current level of bank margins in Chile, according to the analyst, include the strong penetration of non-banking players, the existence of interest rate caps, and risk models with more historical data than other countries in the region - and therefore have stronger predictive capabilities and pricing strategy abilities.

Finally, Chilean consumers are ahead of the learning curve after experiencing more payment crises compared to other Latin American countries and probably have tougher consumer protection regulations that hinder run-away loan growth by more aggressive lenders, the analyst said.

According to a recent report by Fitch, last year the Chilean banking system had one of its greatest recent profit increases, leaving behind the decline seen in 2009 and significantly improving its return on average assets to 1.5%.