trending Market Intelligence /marketintelligence/en/news-insights/trending/sxy5ndpi1z7jt95jj7jchw2 content esgSubNav
In This List

Moody's: Rising debt weighs on Chilean government's ability to support banks

Video

According to Market Intelligence, February 2023

Blog

Banking Essentials Newsletter: January 11th Edition

Blog

Banking Essentials Newsletter December 21st Edition

Blog

The Road to Basel IV: Navigating the challenge facing European banks


Moody's: Rising debt weighs on Chilean government's ability to support banks

Moody's said its negative outlook on Chile's banking sector reflects the government's rising debt burden, which could negatively impact the government's ability to support local lenders, especially if its fiscal position deteriorates further.

However, improving economic growth and rising confidence, following the recent re-election of market-friendly President Sebastián Piñera, should provide Chilean banks with a better operating environment, the rating agency said Feb. 23.

Moody's expects the country's GDP to grow 2.7% in 2018 and 2.9% in 2019, up from 1.6% in 2017, driven by higher copper prices.

Improving business conditions together with greater appetite for higher-yielding loans will benefit the sector's profitability, and "the negative effects of this higher risk appetite on asset quality will be limited given the diversified nature of loan portfolios and the stable risk profile of corporate borrowers and consumers," Moody's noted.

Capitalization levels will likely remain modest, although they will increase gradually once Chile's proposed general banking law is approved as some banks look to boost buffers and others remedy deficits against new minimums.

"Despite a potential decrease in the government's ability to support Chile's largest banks if necessary, its willingness to do so remains very high as reflected in a proposed increase in the central bank's deposit guarantee," Moody's added.