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Chile Commercial Banking Report Q4 2009
Business Monitor International, September 2009, Pages: 50
This Chile Commercial Banking Report provides industry professionals and strategists, corporate analysts, banking associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Chile's commercial banking industry
The publisher now rates 59 banking systems, and it is little surprise that the developed states dominate the top spots. The US and UK come first and second place, respectively, with scores of 88.7 and 88.0 out of 100. Of crucial importance to both scores is the very high rankings in the crucial 'Risks to realisation of returns - Market structure' sub-category, which accounts for 42% of the overall score. The two countries are ranked first and second in this category as well. This sub-category captures the size of the sector, and the potential for assets and loans to grow in US dollar terms. While both systems have been buffeted by the global credit crunch and will not post stellar growth numbers in percentage terms for the foreseeable future, the sheer size of the US and UK's financial systems means that there is massive potential for deposits, assets and client loans to rise. In addition, the generally solid institutional framework - which looks set to be augmented with new post-credit crunch regulations - will continue to provide a firm basis for the sector.
A Mixed Bag For The Developed States
Following just behind the US and UK are a clutch of major developed state economies, including France (82.9, 3rd) and Germany (80.5, 4th globally), Canada (79.9, fifth), as well as Australia and Italy (78.4, joint sixth). All of these sectors have reasonable prospects into the medium term, having a large deposit and loan base, as well as the potential to grow substantially in volume (even if not percentage) terms. However, several states are notable by their absence in this cluster. Austria falls somewhat short (72.4, 12th) of the pack, along with Greece (69.4, 16th), but it is the poor performance of Switzerland (62.7, 26th) and Japan (56.3, 34th) which really stands out. Both states are going to struggle to post increases in asset or loan growth in US dollar terms over the forecast period, to 2013, partially as a result of currency moves to the downside, but also in the case of Switzerland because of the relative weakness of the two key banking groups, UBS and Credit Suisse which had built up large franchises during the good years.
Significantly, just behind the main 'pack' of European economies, several Asian states have managed to post strong performances in their risk ratings. Malaysia (72.1, 11th) and Singapore (77.1, 8th) come in ahead of Austria. However, Singapore leads the world globally in the 'Risks to realisation of returns - Country risk' sub-category, with a score of 84.0, while South Korea has a score of 64.0. Singapore's high score rests on good scores for key elements of BMI's economic, political and business environment risk ratings, which measure the risks to policy continuity. In contrast, the small size of the economy and banking sector is a major factor limiting the potential for expansion, especially in a world of lower liquidity and risk appetite. South Korea, however, has a large domestic economy to provide the deposit base necessary to fund credit growth.
Elsewhere in Asia, the publisher note that China (overall score 75.1) ranks 9th overall. As the world's third biggest economy - and still an emerging one at that - it is little surprise that the scope for asset growth in China is huge. This has allowed the country to be ranked fourth in the 'Limits of potential returns' category (74.0), and post the highest 'Limits of potential returns - Market structure' sub-category score, at 90.0. What prevents China from rising any higher is its poor performance in the 'Limits of potential returns - Country structure' sub-category, at 57.5 (42nd), and the 'Risk to realisation of returns category', at 80.0 (9th). Of particular concern to BMI is the potential for a collapse of the local system, because much lending is still state directed and risk management is still embryonic. In addition, despite the size of the whole economy, per capita GDP remains low. The publisher forecasts it at US$3,024 for 2009, with significant income inequalities. This severely limits the ability of financial institutions to sell premium products in the local markets, and also means that average deposit levels are still very low.
Emerging Europe, Limited Opportunities
The emerging European states are posting surprisingly mediocre ratings outturns. The publisher highlights the potential for a systemic crisis in the region as the major Western European banks removing credit and capital from Central and Eastern Europe. These risks are exacerbated by the deep recessions the publisher sees in the Baltic states, Bulgaria, Russia and Turkey, and the risks of further currency crises that could create even greater economic dislocations, as the massive economic asymmetries that have built up in the region unwind. When taken in tandem with the relatively small size of the local economies and the rapid banking sector expansion seen in recent years, it is little surprise that the highest rated emerging European state is regional heavyweight Russia, at 73.8 (10th globally), and that the top 'new' EU member is the Czech Republic, at 64.5 (24th). Coming close to the bottom of both the regional and global peers groups are Latvia (39.0, 55th) and Ukraine (43.0, 51st), which have both been forced to tap the IMF and EU for emergency funds.
MENA Below Par
The big story in recent years in the Middle East and North Africa (MENA) banking sectors has been high oil prices in recent years. Hydrocarbon revenues have swollen bank balances across the Gulf region, with significant amounts of capital and liquidity finding its way to North Africa as well. With the days of stellar oil prices gone for now (and not likely to return over the forecast period) the outlook is not so positive for the region, and this is reflected in the fact that the two highest ranked countries are the UAE at 14th and Saudi Arabia at 21st. No other MENA state has broken into the top 25 of their 59-strong ratings universe. Of particular concern is that while some progress has been made on putting the region's financial infrastructure on a more sustainable footing in recent years, it is still far too dependant upon oil revenues, and there are few drivers of either economic or commercial banking growth outside the natural resources sector. Indeed, it is particularly worrying that not one MENA state has broken in to the top 10 states in the 'Limits of potential returns - Market structure' sub-category. The best performer is the UAE, in 18th place, and even with the growth of Islamic banking products, the boom years are over. The publisher expects much more moderate growth in the financial space over the forecast period.
Opportunities In Africa
While Africa remains one of the most 'under-banked' regions in the world - and hence one of the most insulated from the global credit crunch - the commercial banking business environment ratings still reflect the major problems in operating even in the region's largest economies. South Africa's overall 70.5 rating score put it in 13th place globally, while in the 'Limits of potential returns - Market structure' category it scores 73.3, but it receives poor score for 'Risks to realisation of returns - Country risk', at 56.0. The country's main weaknesses, in common with Kenya and Nigeria, are bureaucracy, external economic risk and financial market risk, all of which deter potential investors from engaging more fully in the local market.
Diverse Latin Performance
Again, in Latin America, the ratings do not tell one particular story, with a widely diverse regional picture developing. Perhaps the most interesting story is among the worst performers, which include Argentina (43.0, 49th), Colombia (50.3, 43rd) and Venezuela (36.0, 56th). All three economies face difficult times over the coming years, having been fiscally imprudent. The latter two (especially Venezuela) have benefited significantly from the oil boom, which has now come to an end. There is little to be optimistic about in any part of the ratings for these countries, and the publisher anticipates a much weaker performance than in Brazil (66.5, 123rd), Chile (66.6, 22nd) or even Mexico (67.6, 20th). Of particular note is Brazil's crucial 'Limits of potential returns - Market structure' sub-category rating of 80.0 (seventh globally) and Chile's reasonably solid 80.0 'Risks to realisation of returns - Market structure' rank of 11th.
- Table: Levels (CLPbn)
- Table: Levels (US$bn)
- Table: Levels At June 2009
- Table: Annual Growth Rate Projections 2009-2013 (%)
- Table: Ranking Out Of 59 Countries Reviewed In 2009
- Table: Projected Levels (CLPbn)
- Table: Projected Levels (US$bn)
- Chile Commercial Banking SWOT
- Chile Political SWOT
- Chile Economic SWOT
- Chile Business Environment SWOT
Business Environment Outlook
- Commercial Banking Business Environment Rating
- Table: Commercial Banking Business Environment Ratings
- Commercial Banking Business Environment Rating Methodology
- Commercial Banking Business Environment Ratings
- Global Commercial Banking Outlook
- Table: Loan Growth, 2006-2013 (% change y-o-y)
- Table: Loan-To-Deposit Ratios, 2006-2013
- Regional Outlooks
- Latin America Banking Sector Outlook
- Chile Banking Sector Outlook
- Economic Outlook
- Table: Chile – GDP Contribution To Growth
- Market Structure
- Table: Protagonists In Chile's Commercial Banking Sector
- Definition Of Chile's Commercial Banking Universe
List Of Banks
- Table: State-owned Bank And Other Banks Established In Chile
- Table: Branches Of Foreign Banks
- Company Profiles
- Key Statistics For BancoEstado, 2007-2008 (CLPmn)
- Banco De Chile
- Key Statistics For Banco De Chile, 2004-2008 (CLPmn)
- Banco Internacional
- Key Statistics For Banco Internaciónal, 2007-2008 (CLPmn)
- Key Statistics For Scotiabank, 2006-Q308 (CLPmn)
- Key Statistics For Corpbanca, 2004-2008 (CLPmn)
- Banco Bice
- Key Statistics For Banco Bice, 2007-2008 (CLPmn)
BMI Banking Sector Methodology
- Commercial Bank Business Environment Rating
- Table: Commercial Banking Business Environment Indicators And Rationale
- Table: Weighting Of Indicators
- Banco De Chile
- Banco Internacional
- Banco Bice
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