Chile's banking sector stands out in many respects among its peers in the region. A strong and stable economy, effective regulation, and competition between banks has enabled the development of one of the most sophisticated, highly penetrated and dynamic financial sectors in Latin America.

Learning hard lessons from past crises, Chilean banks have also proven to be adept in managing risk. In recent years the system has enjoyed stable growth and asset quality levels.

Nevertheless, in line with the trends seen in many Latin American countries and other emerging markets around the world, the operating environment faced by banks is undoubtedly more challenging in 2016 compared to recent years.

High demand for copper, Chile's principal export, contributed to average annual economic growth of above 5% between 2010-2013, together with real wage growth and a positive environment for many other industry sectors. But with the reduction in global commodity prices, from 2014 onwards Chile has seen lower economic growth, depreciation of its currency and a consequent rise in inflation, increasing challenges for companies and instability in the labor market.

While the economy is certainly not in crisis -growth remains at around 2%- banks have been required to adjust their strategies in the face of this shift in operating conditions, becoming more conservative with regard to loan origination, and aiming to boost efficiency in an effort to protect profitability in a lower-growth environment.

In this report, BNamericas provides an overview of key loan growth, asset quality, profitability and M&A trends in Chile's banking sector, as well as a review of other key issues such as new regulations and financial inclusion.

Figure 1: Chile GDP and Inflation


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