Banks around the world face increasing oversight as governments build walls around them to prevent another crisis, but with capital flowing into emerging markets, consumer spending strong and interest rates climbing, you could do worse than invest in Chile’s second-largest bank, Banco de Chile (BCH), which is controlled by Chile’s powerful Luksic family and Citigroup (C).
The bank posted record net profits of $249 million in the first quarter of 2011, up 16 percent from the same quarter of 2010, and a return on net equity of 28.1 percent.
The increase was mainly due to a decrease in provisions for loan losses, higher interest rates, growth in the bank’s loan portfolio, and higher fees and commissions. These factors enabled the bank to more than offset an increase in operating expenses, lower financial operating income, and higher income tax.
The bank’s loan portfolio grew 13.4 percent to $31.6 billion in the first quarter, led by growth in residential mortgage loans, followed by commercial and consumer loans.
“The annual growth is associated with the higher dynamism shown by the economy, which has positively impacted the unemployment rate and other indicators,” said the bank in its earnings statement.
With Chileans feeling more confident about the future of the economy and with interest rates rising in line with inflation, consumers are borrowing more at higher rates, which is good news for banks.
“We believe that our quarterly results are a consequence of well-implemented and focused commercial strategies, including a deeper segmentation of our customers in all of our business lines,” said CEO Arturo Tagle.
In March, Banco de Chile successfully completed the first stage of a planned $500 million capital increase aimed at shoring up the company's balance sheet, raising $180 million in a share auction. Demand exceeded supply by seven times.
“We are very proud of the result of this first step and it permits us to be confident about the success of the second and third stages of this process,” said Chairman Pablo Granifo.
Upside priced in
Banco de Chile has an 18.8 percent market share, second only to Spain’s Banco Santander. In January 2008, it took over the assets and liabilities of Citibank Chile. With the merger, Citigroup obtained a stake in Banco de Chile’s holding company LQ Inversiones Financieras, a unit of Quinenco, which in turn is the financial arm of the Luksic family, owner of one of the country’s largest mining companies.
In March 2010, Citigroup increased its stake in LQ Inversiones to 50 percent giving it a 30 percent indirect stake in Banco de Chile.
Local brokerage BICE Inversiones says most of the upside has been incorporated into the bank’s share price, but the advice is to hold.
Over the last 52 weeks, Banco de Chile’s ADR has traded at a high of $91.46 and a low of $57.03, gaining 57 percent in that same period.
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