According to the Financial Market Commission, outstanding loans in Chile from the banking system fell by 0.3% YoY in real terms in April, down from the +0.28% in March (-3.39% in April 2023), leading to the first annual contraction since January. Outstanding real commercial loans in Chile fell again, contracting by 2.67% in April (-1.31% in March, -5.76% in April 2023), declining on an annual basis since May 2022. Outstanding consumer loans in Chile fell by 0.67% in April (-1.73% in March, -3.4% in April 2023), the smallest annual contraction in more than a year, which put together with double-digit annual growth in the flow of consumer loans suggests outstanding balances should turn positive in the short term. Real outstanding mortgage loans in Chile rose by 2.56% (2.48% in March, 1.39% in April 2023).
Non-performing loans (defined as delinquencies of more than 90 days) rose slightly to 2.26% in April (2.24% in March, 1.9% in April 2023), yet appears to have reached a cyclical peak. Even though the banking system’s NPLs appear to have stabilized, they remain well above the March 2014 – March 2020 average of 1.95%. By loan type, consumer NPLs fell again to 2.82% (2.94% in March, 2.77% in April 2023), edging further down from the cycle peak of 3.04% reached in February. The marginal improvement in consumer NPLs in recent months appears consistent with better-than-expected labor market dynamics and the decline in interest rates, among other factors. Mortgage NPLs remained essentially unchanged at 1.89% (1.9% in March, 1.45% April 2023), down from the cycle peak of 1.97% in February, still well below the pre-covid 2.4% level. In contrast to the declines in NPLs in consumer and mortgages, commercial NPLs continue to increase, rising to 2.4% in April (2.33% in March, 2.0% in April 2023), trending up from the low of 1.37% in December 2021.
Borrowing rates fell in April. Interest rates in nominal terms on consumer loans averaged 25.84% in April, down slightly from 26.0% in March, and the 28.84% of April 2023. Similarly, interest rates in nominal terms on commercial loans averaged 11.56% in April, down from 12.39% in March, well below the 16.37% of April 2023. Interest rates on commercial and consumer loans are projected to continue to gradually decline, in line with the transmission of monetary policy, that has accumulated a total of 525-bps in cuts since July 2023. Inflation-linked rates on mortgages averaged 4.87% in April, down from 4.9% in March, yet substantially above the 4.29% of April 2023.
Our take: Credit dynamics appear consistent with our outlook for the economy, with consumer loans improving, in line with a private consumption-led recovery, and commercial loans still weak, suggesting investment is likely to remain subdued this year. As we anticipated last month, NPLs appear to have stabilized, although the persistent rise in commercial NPLS should be monitored. On policy, we expect the BCCh to announce a “neutral” nominal level for the counter-cyclical capital requirement for the banking system (currently set at 0.5% of RWAs) in November 2024.
Andrés Pérez M.
Vittorio Peretti
Ignacio Martinez Labra
