Moody's saidJuly 25 that it lowered its outlook for the Chilean banking system to negative fromstable as it expects bank profit levels to narrow amid low copper prices and slowergrowth negatively impacts asset quality.
The rating agencysees Chile's GDP growth to average less than 2% during 2016 and 2017, well belowthe 5.3% average from 2010 to 2013. The global copper price dip has led to "subduedbusiness and consumer confidence," the agency added.
"Chile'sweak economic activity will continue to drag on borrowers' ability to service debts,and on banks' business volumes," Felipe Carvallo, a Moody's vice presidentand senior analyst, said. "This will weigh on earnings at a time when banksare already facing a host of other pressures, including intense competition, interestrate caps on consumer loans, and higher liquidity requirements."
In addition,Moody's noted that although banks focus mainly on high-quality corporate customers,asset quality will weaken somewhat in key industries, including mining and relatedservices, construction, nonbank financial services and fishing. The banks' highsingle-borrower concentrations could also heighten their sensitivity to any declinein corporate loan performance, Moody's said.
However, Chile'sbanks are supported by generally adequate and improving capital levels, stable fundingand liquidity, and sound financial fundamentals, which could still be boosted bysupport from the government, the rating agency noted.