According to the Financial Market Commission, the banking system’s stock of outstanding real loans in Chile fell in September by 2.64% YoY, after declining by 2.04% in August (-2.65% in September 2023). Outstanding real commercial loans in Chile fell further in September by 5.85% YoY, after plummeting in August by 4.45% (-5.65% in September 2023), declining on an annual basis since May 2022. On a flow basis, commercial loan growth decelerated sharply over the last two months. Outstanding consumer loans in Chile improved at the margin, falling by 1.64% in September after a contraction of 2.01% in August (-1.56% in September 2023), contracting on an annual basis since January 2023. Real outstanding mortgage loans in Chile rose by 1.92% YoY, (2.09% in August, 2.13% in September 2023).
Non-performing loans (defined as delinquencies of more than 90 days) rose slightly again to 2.38% (2.35% in August, 2.02% in September 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 rose at the margin to 2.65% (2.61% in August, 2.76% in September 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 continue to rise reaching 2.2% in September, well above the 1.66% of September 2023 (2.14% in August 2024), yet still well below the pre-covid 2.4% level. Commercial NPLs also rose at the margin to 2.49% (2.47% in August, 2.11% in September 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 working smoothly in the bank lending channel, as borrowing rates for commercial loans fall further. According to BCCh data, nominal borrowing rates on commercial loans fell slightly in September, averaging 9.66%, down from 10.06% in August, well below the 14.28% of September 2023; the spread with respect to the monetary policy rate fell rose to 4.13pp, below the two-year average (4.5pp). Rates on commercial loans are the lowest since January 2022 (9.26%). Separately, nominal borrowing rates on consumer loans averaged 24.89% in September, up from 24.22% in August, yet below the 28.98% of September 2023; the spread with respect to the monetary policy rate rose to 19.36pp, above the two-year average (18.1pp). Borrowing rates for consumer and commercial loans may slow their decline in the coming months, as the lion’s share of the BCCh’s easing cycle has already been implemented. Inflation-linked rates on mortgages fell again in September to 4.81%, down from 4.97% in August yet still above the 4.35% of September 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 recovery of investment. While the BCCh’s 3Q24 bank lending survey signaled that credit demand from large firms and SMEs improved at the margin, a sign that could signal a turning point in aggregate commercial loan dynamics, September data suggests they have yet to turn the corner. The persistent rise in mortgage and commercial NPLs should be monitored. The BCCh will hold its Financial Policy Meeting on November 19, with all eyes set on our expectation of an announcement of a “neutral” level of the counter-cyclical capital buffer, with this buffer currently set at 0.5% of RWAs. The Financial Market Commission will release data for October on November 29.
