According to the Financial Market Commission, the banking system’s stock of outstanding real loans in Chile fell in November by 0.92% YoY, following a decline of 1.62% in October (-2.06% in November 2023). Outstanding real commercial loans in Chile contracted again in November by 2.97%, after plummeting by 4.7% in October (-4.76% in November 2023), declining on an annual basis since May 2022. On a flow basis, commercial loan growth stabilized at the margin rising by an average of 4.5% YoY 3mma in real terms. Outstanding consumer loans in Chile declined again, falling by 1.38% YoY in November (-1.15% in October, -2.13% in November 2023), contracting on an annual basis since January 2023. Real outstanding mortgage loans in Chile rose by 1.68% YoY in November (1.73% in October, 2.45% in November 2023).
Non-performing loans (defined as delinquencies of more than 90 days) fell again at the margin to 2.32% (2.36% in October, 2.13% in November 2023). As such, the banking system’s NPLs remain well above the March 2014 – March 2020 average of 1.95%. By loan type, consumer NPLs were essentially flat at the margin at 2.52% (2.54% in October, 2.87% in November 2023), interrupting the gradual downward trend that begin in 1Q24; consumer NPLs peaked in the cycle at 3.04% in February, with the improvement likely linked to lower borrowing costs and improvements in the real wage bill. Mortgage NPLs fell to 2.14% (2.23% in October), well above the 1.76% of November 2023 yet still well below the pre-covid 2.4% level. Commercial NPLs fell slightly to 2.43% (2.47% in October, 2.24% in November 2023), close to the highest level at least since 2014, trending up from the low of 1.37% in December 2021.
Monetary policy transmission is still working smoothly in the bank lending channel, as borrowing rates for commercial loans fall further. According to the BCCh, interest rates in nominal terms on commercial loans fell again at the margin in November, averaging 9.20%, down from 9.42% in October, well below the 13.22% of November 2023; the spread with respect to the monetary policy rate fell to 3.95pp, below the two-year average (4.5pp). Rates on commercial loans are the lowest since January 2022 (9.26%). Separately interest rates in nominal terms on consumer loans averaged 23.92% in November, up from 23.68% in October, yet well below the 27.5% in November 2023; the spread with respect to the monetary policy rate increased to 18.67pp, slightly above the two-year average (18.4pp). We expect the decline in borrowing rates for commercial loans to slow in the coming months considering an even more gradual pace towards neutral levels, as signaled by the BCCh’s guidance. Inflation-linked rates on mortgages fell again in November to 4.42%, from 4.54% in October, and down from 5.18% in November 2023.
Our take: Weak commercial loan dynamics remain a source of concern. Credit dynamics have been at the forefront of the monetary policy discussion in Chile, especially considering the relevance that commercial loans may signal for the stalled recovery of non-mining investment. The increase in flows of consumer loans likely reflects the effects of lower borrowing costs. The decline in NPLs for mortgage and commercial credit could signal a turning point. Our models suggest consumer NPLs are likely to remain roughly at current levels during 2025. The BCCh is scheduled to release the 4Q24 Bank Credit Survey in January, and the Financial Market Commission will release bank credit data for December by the end of January.
