Chilean Loan Growth Will Slow As Political Uncertainty Persists And Monetary Policy Remains Tight

• Fitch Solutions forecasts that Chilean loan growth will slow to 6.8% y-o-y in 2022, as mounting headwinds cap activity across the banking sector. 
• Loan growth surprised to the upside at end-2021, coming in at 11.3% y-o-y, even as the Banco Central de Chile raised interest rates from 0.5% in June 2021 to 4.50% by December 2021.
• Loan growth has remained strong thus far in 2022, averaging 12.8% in the year through May, largely attributed to base effects as generous fiscal stimulus and loose monetary policy in early 2021 supported disposable incomes and resulted in weaker loan demand.
• Rising borrowing costs and slowing growth will dampen consumer lending, while political uncertainty will limit corporate lending as the future of Chile’s business environment remains unclear in the coming months.
• Despite slowing growth, Chile’s banking sector remains well protected from external shocks due to the historically conservative lending practices of banks, which will limit the rise of non-performing loans.

(Source: Fitch Solutions)