The Chilean financial system is one of the strongest and most developed in Latin America. In terms of the ratio of deposits and loans to GDP, it is - along with that of Panama - the most developed in the region. In insurance, the penetration level is, together with Brazil, the highest in Latin America.

Despite the impact of the global financial crisis of 2008-09, the Chilean banking sector has maintained in recent years healthy asset quality, along with sound profitability and capital indicators.

However, the sector is facing new challenges. The economic slowdown seen since early last year has hurt growth rates in the banking and insurance industries: so far in 2015 loans and premiums have expanded at slower rates than those recorded in previous years. At the same time, banks are waiting to see what will be the impact of new regulatory changes.

The main changes included in a draft bill to reform the general banking law that the government of President Michelle Bachelet will send to congress during the second half of the year involve strengthening the regulator and adapting the banking industry to the standards of Basel III. This will mean new challenges for banks, especially with regard to higher capital requirements.

Together with these challenges, the sector is experiencing renewed impetus in terms of mergers and acquisitions. Following operations completed in recent months, more M&A action could be seen in the short and medium term. Analysts believe the system is moving toward greater consolidation, and deals could focus on medium-sized banks.

In insurance, the maturity and level of penetration in the market, in a context of a slowing economy, is affecting growth, while intense competition is pressuring operating margins. The latter is particularly noticeable in the general insurance segment.

In this report we look at the main banking sector indicators in Chile, and analyze mergers and acquisitions in the industry. We also explain what effects the regulatory changes will have on banks. Finally, we examine the challenges facing the insurance industry in terms of profitability and the potential for expansion in the Peruvian market.

Figure: GDP


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