Chile’s banking system is stable and well regulated. The soundness of Chilean banks ranked 5th in the latest WEF Competitiveness Ranking. Banks are well capitalised and profitable, characterised by a high liquidity position and a cautious approach to lending. Regulation by the Financial Market Commission (CMF, in Spanish) and the Finance Ministry is considered sound despite the public debt rising to 31.1% of GDP in June 2021.
A new banking law will prepare the industry for Basel III compliance and give greater powers to the banking regulator, which will modernise the banking ecosystem. Banks earnings grew by 189.93% in 2021, reinforced by the help packages of the government and consumer and mortgage lending. Corporate and export borrowing is expected to recover in the years ahead as economic performance stabilises.
Chile’s banking system is largely privately owned, except for Banco Estado. Foreign subsidiaries account for 11 out of 20 banks. The largest players, in consolidated placements, are Banco de Credito e Inversiones (local), 17,8%; Banco Santander (Spanish), 17,3%; Banco de Chile (local), 15%; Banco del Estado (state-owned) 13%; Scotiabank 12% (Canadian); and, Itau Corpbanca (Brazilian) 11% .
Canada’s Bank of Nova Scotia acquired the Chilean subsidiary of the Spanish bank BBVA, which it plans to merge with its operations in Chile to create the country’s fifth largest bank. Meanwhile, Banco de Chile and Scotiabank combined to create a micro transactions application for mobile phones.
Over recent years, Chile has exhibited significant progress in financial inclusion. As of 2017, 98% of Chileans over 15 years old had at least one financial product to manage cash, save money or access credit. Moreover, according to a study by Credicorp Ltd, Chile is the second highest in financial inclusion in the region after Panama. According to this index, 80% of the Chilean population has a debit card, 41% has a bank account, and 60% of the people that have a bank account use a bank application to make transactions.
Chile has three main exchanges, the Santiago Stock Exchange, the Electronic Exchange and the Valparaiso Stock Exchange. Santiago is the main one, with its share index, the IPSA, comprising the 40 most traded stocks. The Santiago Stock Exchange has experienced a volatile period, marked by the social unrest, political uncertainty, COVID-19 crisis and inflation. Despite these factors, the IPSA closed 3.0% higher in 2021 compared to the previous year.
In 2010, the Pacific Alliance countries (Chile, Mexico, Peru and Colombia) merged their stock exchanges to create the Integrated Latin American Market (MILA). By July 2017, the joint stock exchange had a market capitalisation of USD 868.1 billion, growing 10% from the beginning of the year. It is the biggest stock market in the region.
Chile’s pension funds are managed by eight companies called the Administradoras de Fondos de Pensiones in Spanish, or AFP for short. They are under the supervision of the Superintendent of Pension Fund Administrators. By law, all permanently employed citizens are required to contribute 10% of their wages to their selected AFP. As a percentage of GDP, the funds represented more than 69% in 2021, more than US $174 billion in total. Chilean pension funds provide one of the largest institutional savings pool in the region. Currently, they only invest 53.7% of funds abroad well within the 80% limit allowed by law.
British companies manage more than 15% of the funds invested abroad. By September 2021, Schroder Investment Management Limited managed 7.8%, Veritas Asset Management LLP 2.1%, HSBC Holdings Plc 2.0%, Invesco UK Limited 1.4%, and Standard Life Aberdeen Plc 1.4%. However, many non-British fund managers also administer Chilean pension fund money in London.
The Chilean government allowed people to withdraw funds from their pensions to weather the coronavirus crisis, but the decision has left millions without sufficient funds in their retirement accounts.
In 2023, the country’s Finance Minister, Mario Marcel, is due to deliver a bill to congress to reform the country’s private pension system. As yet it is not known whether this will result in the elimination of the private system in favour of a public one.
The country has the highest insurance penetration/density in the region, at 4.56% in 2020. This makes Chile the 5th largest insurance market in Latin America. Per capita spending on insurance products was US$566, in the same year.
The insurance sector had an annual growth in 2020 of 7.0%, and it is expected to rise to 8.7% by 2025. Property insurance is the largest segment in the Chilean general insurance industry, accounting for 52.2% in 2020. In addition, the natural conditions of Chile and the social outbreak in 2019 has driven up Fire and Natural Hazards insurance, which grew over 25% in 2020.
Currently, there are 70 registered insurance companies in Chile: 34 general insurance companies and 36 life insurance companies. In the country, insurance companies and related businesses (brokers, agents, etc.) are supervised and regulated by the Financial Markets Commission. The Commission also administers the register of foreign reinsurers and the registry of national and foreign reinsurance brokers.
Insurance technology will continue to develop, particularly via joint ventures between insurers and brokers and retail chains. For large and mid-sized companies, the appetite for cyber insurance is projected to increase.
Sovereign Wealth Funds
The Law of Fiscal Responsibility of 2006 created two sovereign wealth funds composed of the annual contributions made by the government when running effective fiscal surpluses. The Economic and Social Stabilisation (FEES) was established in 2007 and reached US $2.4 billion in December 2021. The FEES seeks to finance public debt payments and temporary deficit spending, on the negative part of the economic cycle, thereby sustaining a counter-cyclical fiscal policy . The Pension Reserve Fund (FRP) reached US $7.4 billion in December 2021. The purpose of this fund is to anticipate future needs for payments from the government to pensioners whose contributions to the private pension system fall below the minimum required by the State. Chile’s policy is to invest the total in sovereign wealth funds located abroad.