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Chilean Banking Industry: Big Opportunities


The banking industry has been fundamental to the Chilean economy and has played a key role in the country´s development, especially in recent decades since the economic and financial crisis of 1982. 

The 1982 crisis was one of the worst in the country’s history. Its impact on the Chilean economy, both short and long term, was far greater than that of the financial crisis of 2008. At the beginning of the 1980s, numerous Chilean banks were seized, some of which were nationalised and others dissolved. GDP fell by 13.6% in 1982, the sharpest drop since the global recession of 1929. Subsequently, the unemployment rate moved over the 20% threshold, where it remained for several years.

 One of the lessons of the 1982 crisis was the need to strengthen banking regulations. The crisis was caused, among other things, by loose regulations that allowed banks to take excessive risks, thereby making the system fragile. This weakness led to significant amendments to the general banking laws during the 1980s and 1990s, and the main objectives of this process were fully achieved. Now, the Chilean banking system is strong. It was tested during the 2008 financial crisis and emerged virtually unscathed, a demonstration of how things have changed in recent decades. 

“By now, the majority of Chilean banks have become highly efficient major corporations spanning all market segments and covering all sorts of products.”

 The local banking industry has seen two decades of continuous growth, explained both by its own strength as well as by the country’s economic success. Bank loans went from US$46.5 billion in 2003 to US$230.8 billion in 2013, a CAGR of 17.4%. In just five years, banks earnings doubled, going from US$1.9 billion in 2008 to US$3.9 billion in 2013. The trend continues this year, as earnings for the first half of 2014 were 51.6% higher of those of the same period in 2013. 

However, the financial stability of the last two decades has caused consolidation in the system. Stringent regulations and controls raised banking costs, encouraging mergers as a means of increasing operating efficiency. Today’s Banco Santander, for example, is the product of mergers over 10 years (1993-2002) between seven different banking institutions. Moreover, a merger between Corpbanca and Itaú is currently under way that will further consolidate the industry.

At the same time, the high cost of incorporating and operating a bank has generated significant entry barriers to the industry. Consequently, the creation of new banks has been minimal. This is why, despite the strong growth of the industry, the number of banks decreased from 29 in 1998 to only 23 in 2013. As a result, the average amount of loans per bank grew by more than five times in the last ten years, from US$ 1.8 billion in 2003 to US$ 10.0 billion in 2013. By now, the majority of Chilean banks have become highly efficient major corporations spanning all market segments and covering all sorts of products. But scale has come at a cost. Having to cover all commercial segments and offer a diverse range of products nationwide, banks necessarily became more complex organizations. Moreover, to enable the delegation of organization-wide decision-making, they have had to develop standardized and rigid policies and processes. This has inevitably led to greater bureaucracy. In addition, 48% of all banks are now subsidiaries of foreign banks, which, in turn, have additional complexities and challenges of their own.

Retail banks were the first niche banks to capitalise on the opportunities generated by the consolidation of banking. This explains the incorporation of Banco Falabella in 1998, a subsidiary of one of the major national retailers, which was already running a significant consumer loan business in its retail department stores. This strategy was followed a few years later by other major Chilean retailers: Banco Ripley in 2002, owned by the Ripley Corp, and Banco Paris in 2004, owned by Cencosud. As of December 2013, these three banks had increased their market share to over 10% of all bank consumer lending. In addition, in June of this year, Scotiabank Chile announced an agreement with Cencosud to acquire the credit business of Banco Paris.

In 2004, a process analogous to that occurring within the retail segment began with the creation of Banco Penta, Chile’s first pure investment bank. Banco Penta focuses exclusively on three types of clients – high net worth individuals, financial institutions and corporate clients – and provides them with an array of products and a world-class service that includes asset management, brokerage, corporate finance, sales and trading and financing. Currently, the bank manages assets worth more than USD2bn for more than 3,500 clients and has a lending portfolio of more than USD1bn in commercial loans.

In 2011, following the path first taken by Banco Penta, Brazil’s BTG Pactual acquired Celfin Capital, a local broker dealer and asset manager, in order to create a second investment bank. In 2012, Banco de Crédito del Perú (BCP) did similarly by acquiring IM Trust, another local broker dealer and asset manager. However, BCP did not incorporate a bank in Chile in favor of continuing to use its Peruvian bank for businesses requiring a balance sheet. 

We believe that in years to come, niche players will continue to capitalize on the opportunities generated by industry consolidation and will gain market share as leaner organisational structures enable them to respond more rapidly to customers’ needs. 



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