chilean banking industry

Download CHILEAN BANKING INDUSTRY

Post on 14-Jan-2016

35 views

Category:

Documents

0 download

Embed Size (px)

DESCRIPTION

CHILEAN BANKING INDUSTRY. Arturo Tagle March 19, 2002. Financial System. Pension Funds US$36 Billion of funds under management. Banking Industry US$45 Billion of loans. Financial System. Insurance Companies US$12 Billion of financial investments. Total Loans / GDP. - PowerPoint PPT Presentation

TRANSCRIPT

Sin título de diapositivaInsurance
Companies
The chilean banking system continues to successfully combine asset quality, stability and profitability, despite sluggish local activity and international instability.
This was achieved in a context of a strict regulatory environment -one of the toughest in the region- evidenced, among other, by requirements on portfolio diversification and timely recognition of credit risks through an adequate provisioning policy.
Estudios y Planificación
Total Loans / GDP
Estudios y Planificación
Source: Superintendency of Banks.
With total assets in excess of 68 billion dollars, equivalent to almost 90% of Chile's GDP, the financial system included, as of last December, a total number of 27 institutions.
Hoja1
loans
0.5%
0.3%
0.4%
0.4%
1992
1993
1994
1994
1995
0.68
0.73
0.84
0.74
0.84
0.46
0.49
ROE
27.18
25.13
14.61
ROA
1.22
1.11
1.49
20.70
3.10
14.70
· Subordinated Debt Repaid
- Minimal retained earnings
- Maximum earnings retention
- Negative influence on
Top five Private Banks
foreign Banks
Consolidation and globalization have been present for some time now.
The 16 foreign capital banks account for almost 45% of the loans held by the system, compared to only 14% in 1995. This expansion of foreign banks was achieved, almost entirely, through acquisitions rather than organically, which speaks for the strength of domestic franchises, which would not yield market share.
Estudios y Planificación
CAGR: 9,1%
Chart1
CAGR: 10,4%
Estudios y Planificación
Source: Superintendency of Banks.
(As of December 31,2001)
Source: Superintendency of Banks.
(1) Exclude interbank loans.
Main Liabilities
Credit Quality
With a ratio of past dues to total loans of 1,6% as of December 2001, the system shows a conservative coverage with allowances to total loans of 2,4%.
As far as provisions are concerned -this, meaning change to results- the system's average to net loans clearly responds to the environment's deterioration.
Considering the usual time lag between economic slowdown and its impact on credit quality, we may still expect important provisioning efforts, as compared to previous years with improved activity levels.
Hoja1
Estudios y Planificación
Hoja1
Estudios y Planificación
Income Diversification & Efficiency
During the past years, and tuning up with the global trend, banking regulation has been opening up room for further income diversification.
The chilean financial system is strongly seeking for income diversification. With many lines of business still in a very early stage of development, such as bancassurance, factoring and asset management, just to point out some, the larger players are in the process of increasing those income lines which are not merely interest-related ones.
As we can see in the Chart, these is, apparently, enough room to improve in this area. With a contribution of Fees to Gross Margin slightly above 12%, as an average for the system, the larger banks have shown some improvement, though still stand far from other more developed systems, wich show as much as 50% of fees contribution to Gross Margin.
Another income opportunity for banks, and, in a special way, for the larger ones, is cost reduction. In spite of the fact that much improvement has been already done, the efficiency figures of almost 60% for the combined bank should experience important reduction reaching final levels comparable to the best performers among our peers.
Estudios y Planificación
(1) In terms of 90-365 day real rates .
Estudios y Planificación
Profitability Evolution
With very high rates of return during the first half of the last decade, though somehow losing pace since 1995, the banking industry still compares favorably to many other economic areas, both domestically and internationally.
The change of trend, evidently coupled to the global economy's performance, can additionally be explained by three main factors:
First, tougher competition in accordance to a banking penetration near to 60%
Second, the sharp reduction of inflation that plunged CPI annual increases of 30%, during the early nineties, to an expected 3% inflation for 2002
And, third, the important enhancement of the system's capital base which has experienced an increase, in real terms, of over 55% since 1995 and which explains much of the Return on Equity slowdown showed in the grafh.
Estudios y Planificación
Chilean Financial System
(1) In US$ Millions as of December 31, 2001
(2) Data under 2001 correspond to June 2001.
(3) Net Interes Revenue over Average Interest Earning Assets
(4) Operating Expenses over Operating Revenues
Chilean Financial System
40,980
42,873
45,491
6.1%
The largest bank in Chile
Estudios y Planificación
May -June ‘01: Studies were conducted by both banks.
End of June ‘01: formal negotiations started. Each bank retained an
investment bank as its advisor.
August ‘01: -Boards of Directors announced they had reached an agreement.
- Authorizations requests were presented (Central Bank,
Superintendency of Banks and the SEC).
- A team of executives and employees of both banks were
appointed to establish the Merger Planning Office.
October ‘01: Central Bank and Superintendency gave their approval
December ‘01: after the approval by the SEC, the Shareholders Meetings of both banks voted in favor of the merger.
January ‘02: The merger becomes effective
Estudios y Planificación
The financial merits of the merger:
The transaction was considered accretive to both banks’ shareholders at relative valuation agreed 34:66.
An in-market combination between Banco de Chile and Banco Edwards is also expected to generate significant strategic value
Creation of the largest bank in Chile
Improve economies of scale and extract significant cost savings
Enhance access to capital by combining pools of stock liquidity
The transaction is not only an offensive move but also defensive
Blocks the ability of BBVA, Citibank and HSBC to become serious players in Chile
As in any merger, there are risks that need to be incurred to create the expected value
Estudios y Planificación
Number of transactions
Chilean transactions
Average: 35.6%
1 Implied premium over 30 days average price based on 34:66 relative valuations
2 Market price calculated as average of share price one month prior to announcement
3 Premium: final offe
r vs. price five days prior to announcement Source: JP Morgan
Estudios y Planificación
1 Assets value adjusted for international accounting standards
2 In the case of Inverlat, ROE was used instead of ROAE
Source: superintendencies, JPMorgan research
Estudios y Planificación
1 Calculated as average trading volume from 01/02/01 to 7/31/01
Average daily trading volume1
\\SNYC14232\GCF\Kalina\Banco Edwards\Banco Edwards 11-4-99.ppt
Hoja1
ESTRUCTURA DE PROPIEDAD
QUIÑENCO (Propiedad Total)
* LQ Inversiones Financieras (Quiñenco S.A.)
51.2%
51.5% de acciones SM-Chile (sin SAOS)
* 40 cuotas fijas anuales de 3,18 mill. UF (87 Mill. USD), pend. 35 a dic.'00.
* Familia Ergas
26.1%
* Monto deuda app. 54,8 Mill. UF (1,5 Bill. USD) a dic. '00.
* ADR's
6.0%
* Propiedad de la SAOS : 28,593 mill.de acc.(63.64%del total BCh.)
* Otros accionistas locales
Datos al 27.03.01
* El pago de la cuota fija anual es con el 63.6% de la utilidad, pudiendo
existir un déficit o superávit. Si existiese un déficit de hasta el 20% del
Datos de sept. 2001
K de B.Ch., el B. Central puede vender el paquete (o parte) de las
acciones que posee.
LQ = 51.35%
Otros = 48.65%
BE
BCH
--
1
3.13
(23,147/7,381.5)
# acciones/ADR
165
SM Chile B
SM Chile D
SM Chile E
Subtotal SM
SM Chile B
SM Chile D
SM Chile E
VALORIZACIÓN DE COMPRA (B)-QUIÑENCO
4.73% 91.69% 3.58%
SM-A SM-B SM-D SM-E
OTHERS
LQ
LQ
OTHERS
LQ
JE
OTHERS
2.70%
2.82%
31.94%
28.54%
17.40%
8.88%
7.72%
66% (44,933 Mill.BCH Sh.)
34% (23,147 Mill.BCH-F Sh.)
Direct Float : BCH shares (ADS convertible) = 2.72% + 7.72% = 10.42%
Indirect Float : BCH shares+ SM shares = 2.72% + 28.54% + 7.72% = 38.98%
Total LQ = 52,15%
18.48%
Estudios y Planificación
Two-Step Technologic Integration:
CLIENT SERVICE
Account officer maintained in segments of Indiv.& Middle Mkt. Co.
\\SNYC14232\GCF\Kalina\Banco Edwards\Banco Edwards 11-4-99.ppt
Estudios y Planificación
Deposits Mill.US$ 10,419 19.3%
Allowances Mill.US$ 280 25.6%
Investments Mill.US$ 2,283 18.7%
BCH+BE Mkt share
Allowances/ PD 186% 166%
BCH + BE System’s
(*) Efficiency without depreciation & amortization.
\\SNYC14232\GCF\Kalina\Banco Edwards\Banco Edwards 11-4-99.ppt
Estudios y Planificación
14%
Estudios y Planificación
Loan Portfolio Allocation
\\SNYC14232\GCF\Kalina\Banco Edwards\Banco Edwards 11-4-99.ppt
940.bin
Chart1
Net Interest
943.bin
1
9
16
1
0,6%
11,9%
42,6%
44,9%
38,9%
54,6%
0,3%
6,2%
Local
86%
Foreign
14%
Allowances
(1)
1995199619971998199920002001
(1) Exclude Voluntary Allowances for Loan Losses
74,8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
199019911992199319941995199619971998199920002001
17,4%
20,9%
19,0%
18,2%
16,4%
13,4%
11,4%
9,2%
12,6%
16,0%
23,2%
16,2%
2,1%
1,5%
1,5%
1,7%
1,5%
1,3%
1,2%
1,0%
0,9%
0,7%
1,0%
1,2%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
199019911992199319941995199619971998199920002001
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
ROAEROAA
173
314
394
330
225
174
125
74
457
Top 5
(1)
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
199019911992199319941995199619971998199920002001
Foreign
45%
Local
55%
0
5.000.000
10.000.000
15.000.000
20.000.000
25.000.000
30.000.000
35.000.000
199019911992199319941995199619971998199920002001
0%
10%
20%
30%
40%
50%
60%
70%
199019911992199319941995199619971998199920002001
0%
2%
4%
6%
8%
10%
12%
14%
74,8%
25,5%
26,2%
26,8%
Chile
Argentina
Mexico
Brasil
1,840 Mill.Sh.1,917 Mill.Sh.21,744 Mill. Sh.19,432 Mill.Sh.11,846Mill.Sh.6,045Mill.Sh.5,256Mill.Sh.
12,582 Mill.Sh. 28,594 Mill. Sh.
BCH = 100% (