According to the Financial Market Commission, the banking system’s stock of outstanding real loans in Chile fell again in May, declining by 0.56% YoY (-1.15% in May 2024). Outstanding real commercial loans in Chile contracted by 2.74% in April (-3.4% in May 2024), declining on an annual basis since May 2022. Despite the persistent annual contractions, on a flow basis including renegotiations and refinancing, commercial loans rose by 8.7% YoY in the rolling quarter ending in May. Outstanding consumer loans in Chile were back in positive territory for the third consecutive month, rising by 0.66% YoY (-1.86% in May 2024). On a flow basis including refinancing and renegotiations, consumer loans have been rising at a healthy clip for several quarters (+20.6% YoY real in the rolling quarter ending in May). The stock of real outstanding mortgage loans in Chile continues to gradually decelerate, rising by 1.17% YoY in May (2.5% in May 2024).
Non-performing loans (defined as delinquencies of more than 90 days) were essentially flat at the margin, reaching 2.29% in May (in line with May 2024 at 2.31%). The banking system’s NPLs still remain well above the March 2014 – March 2020 average of 1.95%. By loan type, consumer NPLs rose to 2.42% in May, from 2.39% in April (2.77% in May 2024), down from the cycle peak of 3.04% in February 2024, with the improvement likely linked to lower borrowing costs and improvements in the real wage bill. Mortgage NPLs rose again to 2.4% in May, well above the 1.89% of April 2024. Commercial NPLs were unchanged at the margin at 2.25% in May (2.44% in May 2024).
Bank lending rates were mixed in May. According to the BCCh, interest rates in nominal terms on commercial loans rose slightly in May to an average of 9.28%, from 9.06% in April, well below the 11.2% of May 2024; the spread with respect to the monetary policy rate increased to 4.28pp, somewhat below the two-year average (4.33pp). Rates on commercial loans have whipsawed above 9% since January (8.97%). In contrast, interest rates in nominal terms on consumer loans fell to an average of 24.19% in May, down from 24.38% in April; the spread with respect to the monetary policy rate rose to 19.19pp, above the two-year average (18.9pp). The stabilization of borrowing rates through the bank lending channel in recent months takes place as the BCCh has maintained the policy rate at 5.0%, with cuts signaled to take place as soon as July. Inflation-linked rates on mortgages were flat at 4.38% for the second consecutive month, down from 4.45% in February.
Our take: Weak credit dynamics support our view for further policy rate cuts as soon as July. The BCCh will publish the Bank Credit Survey for 2Q25 on July 15, while Financial Market Commission will release bank credit data for June by the end of July.
