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Fitch: Chile's minimum reserve rule for SME loans credit positive for banks

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Fitch: Chile's minimum reserve rule for SME loans credit positive for banks

Chilean banking regulator CMF's adoption of a standardized minimum loan loss reserve requirement for small and medium-sized enterprises aligns with international best practices and is a credit positive for the banking system, Fitch Ratings said.

The measure, which also covers student loans, boosted Chilean banks' loan reserves by $237 million, the equivalent of a 5-basis-point rise to take reserves to 2.48% of total loans, according to the CMF. Fitch believes that the new standardized model strengthens banks' loan loss reserve buffers for SMEs.

The rating agency expects that the new rule will likely negatively impact spreads in SME loans in the short term. However, corporate and commercial loan growth would continue to support cyclical improvements in banks' core financial metrics, the agency added.

Fitch also believes that the CMF could set up a minimum standardized reserve model for consumer loans, which it would view as another credit positive development. The regulator had already implemented similar measures for larger commercial loans in 2009 and mortgage loans in 2016.