Based on figures released by Chilean banking regulator SBIF for November, Deutsche Bank expects the country's two biggest banks, Banco de Chile (NYSE: BCH) and Santander Chile (NYSE: BSAC), to post 4Q12 profits well above what it had previously forecast.
Deutsche Bank expects a 4Q12 net income of 153bn pesos (US$323mn) from Banco de Chile, a 37.8% increase on the previously forecasted 111bn pesos. Meanwhile, Santander is expected to post a 4Q12 net income of 138bn pesos, 17% above Deutsche Bank's previous forecast of 118bn pesos.
Banco de Chile continues to be the most profitable bank, according to Deutsche Bank. Net income in November declined 16% compared to the previous month to 46.6bn pesos, but increased 32% year-on-year. Banco de Chile's ROE was the highest in the system at 29.8%. A 1.0% month-on-month increase (up 7.3% year-on-year) in loans was offset by a 56% increase in provision charges and a higher tax rate compared to the previous month - 14% in November compared to 8% in October.
According to Deutsche Bank, Santander Chile is still recovering from recent weak results. Santander Chile's net income fell 15% compared to the previous month to 42.4bn pesos in November, but showed an 86% increase year-on-year. Santander's ROE reached 23.8%. Declines in net interest income and fee income, and increases in operating expenses and taxes, were offset by a 10% month-on-month (44% year-on-year) decline in provisions, with asset quality improving for the first time in four months and the non-performing loan ratio dropping 20 basis points to 3.1%.
"We expect solid 4Q12 results at both banks, but maintain our Hold ratings, due to premium valuations. Furthermore, we think the stronger results at Banco de Chile are already priced in as it trades at a 20% premium to Santander Chile at 3.6x trailing P/BV vs. 3.0x," Deutsche Bank said in a report.