Loan growth accelerates in January-August, offsetting narrower margins

Monday, October 3, 2011

Chilean banks' loan expansion in August compared to the previous month was strong enough to offset a weaker net interest margin (NIM) caused by lower inflation, Fitch senior director Eduardo Santibáñez told BNamericas.

This led the system's earnings to rise 9.69% month-on-month to 1.17tn pesos (US$2.22bn) in August, according to the latest figures from banking watchdog SBIF.

Consumer and corporate lending increased 1.66% and 1.59%, respectively, in the month ended August 31, almost doubling the growth rate in July.

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Banks' aggressive lending has led loans to expand twice as fast as the country's GDP in the year ended August, Santibáñez said.

On the other hand, banks experienced margin compression as inflation slowed to 0.1% in August compared to 0.3% in July, thus reducing their revenues from loans and investments denominated in the country's UF inflation-linked unit.

The system saw gains from financial transactions increase 3.5 times in August compared to July, as a reflection of the strong drop in long-term interest rates, which led to significant increases in mark-to-market results, the analyst said.

According to Santibáñez, banks will likely continue to see this item fuel their bottom line over the coming months given the global market turmoil, and this increase could become even bigger if the country's central bank starts lowering the benchmark interest rate.

To read SBIF's report, in Spanish, go to this link