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Fitch affirms long-term ratings of Banco de Chile, SM-Chile and LQ Inversiones Financieras


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Fitch affirms long-term ratings of Banco de Chile, SM-Chile and LQ Inversiones Financieras

FitchRatings on April 29 affirmed the national long-term ratings of , as well as its holdingcompany Sociedad Matriz del Bancode Chile SA, known as SM-Chile, and its ultimate parent company, , atAAA(cl).

The outlookfor the ratings is stable.

Bancode Chile's ratings again reflect its solid domestic market position, systemic importance,diversified income base, efficient funding structure, high quality of assets andimprovements in its capital base ratio, according to Fitch.

The ratingsalso reflect improvements in the bank's performance due to successful commercialstrategies. Despite higher volatility in markets and the country's economic slowdown,the Chilean bank has maintained its strong performance in the last five years, Fitchnoted.

Basedon its diversified income structure, Fitch said it expects the bank to sustain itsstrong financial profile in terms of balanced credit growth, controlled costs, highquality of assets and competitive funding costs.

The bankalso shows the highest return on risk-weighted assets than any of its local peersand its profitability is in line with other large banks in the region. In termsof asset quality, the bank's portfolio of loans overdue by 90 days or more is lowerthan its peers, while its level of reserves remains high, Fitch said.

However,regulatory changes such as the implementation of capital requirements related toBasel III, higher provisions, stricter rules for liquidity management and the recenttax reform could pressure the banking system's profitability in the future, Fitchpointed out.

Fitchexpects the bank to maintain the positive trend in its asset quality indicatorswithout taking "excessive credit risks," although a severe economic contractionand higher unemployment could have a negative impact on these indicators in 2016,Fitch warned.

As forSM-Chile, Fitch said the rating of the holding company is in line with the company'sonly asset, Banco de Chile, which generates 100% of its income.

Separately,Fitch said the rating of LQ Inversiones Financieras reflects its relatively lowdebt level and the flow of dividends from Banco de Chile, which have remained highand stable in the last five years. Although future dividends depend on the bank'sgrowth plans, as well as changes in its competitive and regulatory operating environment,in Fitch's opinion the intrinsic financial strength of the bank mitigates theserisks.

Fitchexpects Banco de Chile's ratings to remain stable given its solid performance shownthrough different economic cycles. While they could be downgraded if there is amaterial deterioration in the quality of its assets, which could affect its results,this is not Fitch's base scenario.