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Overview
Discover the latest market trends and uncover sources of future market growth for the Consumer Lending industry in Chile with research from Euromonitor's team of in-country analysts.
Find hidden opportunities in the most current research data available, understand competitive threats with our detailed market analysis, and plan your corporate strategy with our expert qualitative analysis and growth projections.
If you're in the Consumer Lending industry in Chile, our research will save you time and money while empowering you to make informed, profitable decisions.
The Consumer Lending in Chile market research report includes:
- Analysis of key supply-side and demand trends
- Historic volumes and values
- Five year forecasts of market trends and market growth
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Consumer Lending in Chile?
- What are the major trends set to impact the market in Chile?
- What capacity for consumer debt still exists in the market?
- What’s the state of credit quality in the market?
- Has the economic downturn reset the lender competitive landscape?
Why buy this report?
- Gain competitive intelligence about market leaders
- Track key industry trends, opportunities and threats
- Inform your marketing, brand, strategy and market development, sales and supply functions
Euromonitor’s industry reports, including Consumer Lending in Chile, originate from our database within our Consumer Finance market share and market size database, Passport, a platform which analyses Consumer Finance in 46 countries and globally.
Sample Analysis
EXECUTIVE SUMMARY
Consumer lending grows hand in hand with economic performance
2011 saw the growth of lending in Chile, as uncertainties on the market started to decrease, and so, risk rates of clients also dropped significantly. Reduced unemployment rates, higher salaries, economic growth and better company profits were some of the key factors that allowed this market to grow in 2011.
Mortgage/housing loans seem to stabilise after reconstruction fever
As in 2010 the country was affected by an earthquake, which damaged many homes and buildings. Reconstruction fever gripped Chile, which could be observed through the high growth of the lending market and credit acquired for repairing damaged structures during 2010. But in 2011, this trend started to settle down and growth rates were more moderate.
Biggest banks still rule the lending market
Banks are still the main players in the consumer lending market, and the biggest banks, Banco Santander and Banco de Chile, are the biggest players in Chile. However, some other financial institutions such as cooperatives, are starting to take share from established lenders.
Transparency is paramount for the government and private companies to prevent abuse
The government is seeking approval in Congress of a law in pursuit of transparency, following the identification of astronomically high charges made ??by banks in terms of interest rates and fees. Meanwhile, some banks have begun to launch campaigns to educate customers and promote the correct use of information, in order to restore the damaged trust.
Good economic climate supports optimistic growth prospects for consumer lending
After a positive 2010 and 2011, the good economic performance of Chile and the anticipated high GDP growth are the main reasons behind the predicted high growth rates and general rise in consumers accessing credit. Anyways, it is expected that the forecast period will be slower than the 2010-2011 period, because the rebound following the economic crisis and earthquake will have passed, and Chilean Central Bank’s monetary policy interest rates were going upwards until mid-2011.
Economic rebound enhances consumer lending in Chile
Consumer gross lending in Chile grew by 7% in 2011. The effects of economic rebound since the slowdown in 2008 kept consumers’ expenditure on track, coupled with lower unemployment rates and more access to better jobs. Despite the rise in the interest rate made by the Chilean Central Bank, which reached 5% by mid-2011 in order to encourage savings, consumer lending had a good performance due to lower risk levels and more flexible access to consumer loans granted by lending institutions.
This was also given because some consumption areas are experiencing high demand, such as auto and home lending, which grew in gross lending by 12% and 11% respectively in 2011. On the other hand, many banks are crossing product portfolios and several promotions and discounts with consumer loans to attract customers with more compelling alternatives. Large and chained retailers, with their wide presence all over Chile, have contributed to this process attracting customers from lower income segments to their credit offers because of the softer standards compared to banking institutions and also because of the promotional packages and payment facilities they offer.
Current Impact
The economic climate in 2011 has helped consumer loans’ performance in Chile. The expansion of banks into the middle- and mid-low income segments has helped accelerate this demand, as these consumers are sometimes more likely to require credit. These consumer groups are slowly earning higher incomes as the levels of unemployment have decreased in 2011 and the labour market is more stable. Greater certainty in the markets, lower risks and greater flexibility in access to credit, encouraged by banks and other lending institutions, have also contributed to consumer credit’s good year.
The lending standards fell as the effects of the global crisis of 2008 began to decrease. Many banks and lending institutions such as BancoEstado, Banco de Chile, Corpbanca, among others, started expansion strategies to widen their customer bases, which led them to more flexible access to consumer credit. Many others offered promotions related to consumer loans to attract customers such as Banco de Chile, which tied consumer loans to tickets to the “Copa América” soccer cup. Corpbanca crossed the acquisition of consumer loans to life insurance policies, offering a wide range of coverage. BancoEstado offered consumer loans via mobile phone. The latter bank was important because it reached middle- and low-middle income segments with consumer loans in 2011, for example, through the “Creditazo Marzo”, a consumer lending promotion which kept rates affordable for these consumers, from 0.99% upwards, and comfortable terms up to 72 months.
Specific categories boosted the performance of consumer lending. Auto lending saw the highest growth of 12% in gross lending, because the car industry continues on a growth path in Chile. In 2010, for instance, used cars increased sales by 12%, while new lightweight cars grew on a 66.6%, according to the National Chamber of Car Commerce. Middle-income consumers are the most likely to apply for auto lending; especially now that the competition within the automobile market in Chile is very strong, making it possible for people with limited disposable income to buy good quality cars at affordable prices.
Outlook
There are good prospects for consumer lending over the forecast period; even though the “boom” of consumption is coming to the end. Macroeconomic conditions are expected to remain stable, considering that one of President Piñera’s main government focuses is to boost employment and improve access to jobs. Other indicators suggest a good performance, such as the decrease in non-performing loans that are reaching pre-economic crisis rates seen in 2008 (recorded a 2% increase in 2011 versus 2.6% in 2009). Higher employment and more stable incomes of Chilean households may allow repayments with more certainty in the coming years.
Future Impact
Consumer lending is expected to grow at a CAGR of 5% in outstanding balance over the forecast period. Good economic expectations may keep Chilean consumers requesting consumer loans, and the expansion of banks to middle and lower income consumer segments may boost consumer lending, because these people are more likely to request loans that can help them to purchase a car, finance a career, or purchase products and services, compared to higher income consumers that can afford these purchases without the need for credit.
Lenders are expected to strengthen competition within this market using different strategies. Retailer banks are expected to take advantage of their huge presence all over the country to catch clients. Banks will try to expand to middle-income consumer segments and may also strengthen the supply of products and services attached to consumer credit, improving customer service to gain in reliability.
The category expected to record the highest growth over the forecast period is auto lending, which will grow at a CAGR of 8%. The large supply of cars because of fierce competition and the relatively low costs dominating this market has encouraged people to request auto loans and this is not expected to change over the forecast period. Lenders are expected to launch more compelling auto loans, crossing products such as Falabella SACI, the auto loans of which provide a wide range of additional benefits such as reward points on the company’s card (CMR) and carrying out the maintenance of the vehicles in its associated concessionaires, among many others.
Chilean lending industry fights for transparency
A study conducted by the Servicio Nacional del Consumidor (Sernac – National Consumers’ Service) in April 2011 looked in to the real costs of taking consumer credit in Chile. The conclusions of the study showed a severe lack of transparency in lending institutions: It found differences of 415% in interest rates for the same requested funds.
The study was conducted during April 2011 and included consumer loans of CLP500,000, CLP1 million and CLP3 million over 24- and 36-month terms, and covered 23 banks and some of the other main lending institutions.
The study found significant differences between the terms offered: The fees charged to two consumers who request credit of CLP3 million over 36 months from a single institution can vary by as much as CLP1.8 million.
There is not yet a clear and compelling reason to justify these differences that directly affect consumers (obviously banks charge rates according to clients’ risk, but the differences are simply too high). President Piñera’s Government sent a bill to Congress to end these asymmetries and force lenders to post information on their websites, so that the Sernac can make a clear record of all the information the consumer needs when taking out consumer credit. The bill is still being debated and has not yet been approved.
Current Impact
Consumer credit is heterogeneous for Chilean consumers. There is segmentation and selectivity, which can be a threat to efficient and transparent operations. There are also wide differences regarding the price of commissions, insurances and taxes. Consumers have not reacted to these differences. Many of them are closely tied to their banks so that these events do not generate significant changes in banking continuity.
A study initially conducted by Sernac in January 2011 and later in April, although failed to shake consumers, has led some banks to react by implementing aggressive strategies to improve their brand image amid this controversy. Falabella was the first player to be concerned about this and launched TV spots promoting transparency, through the campaign “Mirémonos a los ojos” (Let’s look each other in the eye). Banco de Crédito e Inversiones stated nine transparency commitments in 2011, published via BCI and TBanc webpages. It also launched ??TV spots promoting transparency regarding fees, commission, etc. The bank also tries to deliver more complete and clear information to its customers. For example, it immediately reimburses unfamiliar charges or bank errors. In addition to educating customers on the web there are helpful videos featuring, for example, how to read bank and credit card statements, as well as financial clinics offering advice on how not to over-borrow.
Outlook
President Piñera's Government has stressed the importance of creating a Sernac Financiero, a new institution to regulate asymmetries, requiring information to be made ??available by lending institutions. If this institution is created, these companies will be forced to publish information on their websites, allowing Sernac to compile statistics and launch public reports on prices and product descriptions.
The need to reinforce this trend has reached political circles in Chile. It has been noted that high interest rates in consumer loans affect 53% of Chileans, raising the need to reform the regulatory institutions in this market. It is expected that Chile will advance in terms of measures that can contribute to the better functioning of the market from the consumers’ point of view and to more information on consumer debts (with appropriate safeguards for privacy), allowing financial institutions to reward good payers and facilitate mobility between institutions.
Future Impact
The outstanding balance of consumer lending is expected to grow at a CAGR of 5% in constant terms, but if the bill is passed into law consumers with a higher level of information may slightly moderate this growth.
Given the pending approval of the transparency law, banks are expected to continue to react strongly to increase their credibility and improve the trust of customers.
Meanwhile, the growing concern about this issue in the political world may enhance the importance of regulation.
A special meeting was organised in May 2011 by the Christian Democracy party’s members, and signed by 43 members of parliament, in order to address the high interest rates and the differences in the rates being applied to consumer loans. Some deputies aired their concerns about the banking system and the high interest rates that the system is charging citizens for consumer loans.
It has also urged the Ministry of Finance to study the root causes of charging high interest rates on consumer loans (higher than average according to the level of risk) and give urgency to the bill that establishes an annual rate equivalent to the cost of bank and non-bank credit cards.
Auto lending leads consumer credit
The car industry in Chile is growing every year. People with more disposable money, more expeditious access to auto loans and the enhanced value of automobiles over other modes of transport are cited by the Instituto Nacional de Estadisticas (INE) as the main reasons for the growth of cars in Chile. These facts provide the foundation for car loans’ good performance in 2011. Decreasing levels of unemployment in Chile enable consumers to have greater certainty of making repayments.
As Chileans have better economic solvency, lending institutions lowered the standards of access to auto loans, attracting mostly middle-income consumers, which are very likely to make efforts to buy their own car, frequently requiring auto loans to support the expenditure. Institutions are also able to decrease loans’ risk by granting loans with the car as a security.
Current Impact
Instituto Nacional de Estadísticas (INE- National Statistics Institute) estimated in 2010 that the growth of the vehicle fleet in Chile is continuing to grow at rates above 6% per year since 2005 (with the exception of 2009, when the economic crisis slowed down growth to 3% according to this source) and the rate of vehicles is one for every five people. Taking advantage of the high competition in the car market (reinforced by the entrance of Chinese cars in 2007), which allows users to find high-quality or fully equipped cars at affordable prices, many Chileans –driven by a better economic situation- bought cars, many of them seeking support on car loans, especially middle-income consumers. Auto lending recorded value growth of 12% in gross lending terms.
Lending institutions have sought to provide greater convenience in order to hook users to car loans. Flexibility in the first instalment payment, longer terms of payment, such as BancoEstado extending the term to five years, are features that compete in this market. Other banks like Banco de Crédito e Inversiones attached total loss car insurance to auto loans, with attractive premiums for users. Moreover, Banco Falabella takes advantage of the retailers’ strong presence throughout Chile, allowing both customers and non-customers of Banco Falabella to access auto loans.
Outlook
Passenger cars in use grew by 6% and new registrations of passenger cars also grew by 2% in 2010. The number of passenger cars increased as consumers were encouraged by a more stable economic situation. The growth of passenger cars in the near future may continue to be positive but most likely at a lower rate as fuel costs continue to rise. The price per 10-litres of Premium Unleaded Petrol increased by 22% in current terms in 2010 and is projected to increase by 12% in 2011. The introduction of alternative energy automobiles will combat the increase in fuel prices, but will also require heavy infrastructure investments, which will slow the demand for these types of vehicles. Automobile lending will be a means to obtain the vehicles, but a decline in new car sales will have a negative impact on lending as new vehicles are more expensive than used vehicles. In the short term, the demand for auto lending should remain stable as demand does not seem to be in decline. Transparency issues will have a bigger effect on auto lending in the short and long term.
Future Impact
Although auto lending is not expected to be the main driver of consumer lending over the forecast period, gross lending is expected to grow at a CAGR of 8%. The economic climate is expected to remain stable in the coming years, with levels of unemployment and inflation controlled. The growth of car ownership is not expected to wane over the forecast period. Lending institutions, however, are in the public eye due to the studies of transparency conducted by the Servicio Nacional del Consumidor (Sernac) in 2011, which showed serious asymmetries in terms of differences in interest rates and operational costs. A consumer may end up paying nearly double for CLP3 million of credit over 48 months. Operational costs may end up surpassing the CLP200,000 mark in certain banks. This is why it is important for lenders not only to offer greater convenience to customers, but also to overcome these transparency issues to bring greater reliability and boost the performance of this category.
Mortgage/housing loans stabilises after earthquake reconstruction
Mortgage/housing loans were boosted in 2010 after a slower 2009, when the pace of growth slowed down due to post-crisis effects. The earthquake of February 2010 gave a strong boost to mortgage loans to rebuild homes. Interest rates fell sharply in order to encourage consumption after a period of heavy spending for reconstruction, which further encouraged the process.
In 2011, mortgage/housing loans had a good year, but not as good as 2010. The more moderate unemployment rates and better economic perception led to solid demand, especially from people whose homes were destroyed. Because of higher economic solvency in general, the lenders eased access to mortgage loans and provided greater convenience of payment, coupled with affordable rates for consumers, which kept growing in this category, although less than in 2010.
Current Impact
The outlook for mortgage/housing loans in 2011 is still influenced by the rebound of post-quake reconstruction. The category grew by 7% in gross lending terms. Mobility in the housing sector, with a large supply of credit from lending institutions has meant that demand has remained stable in 2011. This was accompanied by affordable interest rates for consumers; especially for the middle-income consumers that are more price sensitive. However, growth has moderated compared to 2010 when the demand for consumer loans was higher due to reconstruction, increasing by 13% in terms of gross lending.
Lending institutions have maintained their efforts to keep interest rates and final dividend to a controlled level, without transferring inflation adjustments to consumers, making mortgage loans suitable for middle- and mid-low-income people, whose homes were severely affected by the earthquake.
Banking competition remained strong with BancoEstado, Banco de Chile, and Banco de Crédito e Inversiones, among others, lowering their credit standards. Other lenders such as Santander Santiago crossed mortgages with other products, offering the purchase of Citroën vehicles with preferential interest rates, for example. Banks and other financial institutions are looking to attract an audience that is beginning to have more resources to undertake building projects, especially middle-income consumer segments.
This category is also influenced by the launch of strong advertising campaigns throughout the year, such as BancoEstado’s “Hipotecazo” or Corpbanca’s Hipotecario (Mortgage), which it states is so small (3.3%), that “they had to make it bigger (increased font size) so clients would be able to see it”.
Outlook
The outlook for the forecast period indicates that post-quake reconstruction reached its peak in 2010 and will decline towards 2016. In fact, it is expected that mortgage/housing will grow at a CAGR of 4% in gross lending terms, but it is going to be dwindling towards 2016, reaching 5% in 2012, ending on less than 4% in 2016. This makes sense since the bulk of the mortgage/housing loans requested for reconstruction were given in 2010 and interest rates are not expected to decrease anymore. Economic growth and intense competition from banks and other lending institutions to attract customers especially in middle-income sectors of the population is expected to keep this category growing over the forecast period.
Future Impact
Although the growth of mortgage/housing loans is expected to reduce in intensity in the coming years, there is still room to grow, albeit in a conservative way. As a very fluctuating market, mortgage/housing may depend largely on expected inflation rates, interest rates and general economic perception, although these factors are expected to remain relatively stable in the short term.
The government of President Sebastián Piñera stated its intention to reduce the cost of mortgage/housing loans through the bidding of insurance related to these operations. This is important because people that request mortgages loans, which are largely middle-income people, might access these loans at lower costs by reducing the value of insurance. This is expected to apply to all types of mortgages granted to individuals by banks and other financial institutions.
Ecological trend takes off in the banking industry
As a way to innovate and attract customers, some major banking companies have incorporated the concept of sustainability to launch new financial products and services. Under this strategy of environmental awareness, these players seek to substantially improve their brand image as well as capture unexplored niches of the financial market.
This trend reflects the fact that banks are seeking various forms of competitive differentiation since the competition through interest rates has not been enough. Mortgage loans for homes that use eco-technology and initiatives that reduce CO2 emissions in the environment through the purchase of carbon credits are the most noteworthy releases in the financial market in Chile.
Current Impact
Despite being new to Chile, ecological sustainability has become an important trend in the financial market. Relevant banking companies in Chile have taken environmental awareness and have developed products and innovations that aim to improve their brand image and attract customers who have such interests. The use of clean technologies and reduction of environmental impact caused by the activities and investment projects has become an effective business strategy.
Banco de Credito e Inversiones, with its green plan, opened the first Carbon Neutral current account in Chile in 2011, helping to reduce the damage caused to the environment. The bank strives to show clients the impact of CO2 emissions on climate change. The Emisiones de Gases de Efecto Invernadero (GEI – greenhouse gas emissions) resulting from the bank's measurement is neutralised by purchasing carbon credits from projects that capture or remove these polluting gases, thus ensuring that this plan is the first "Carbon Neutral" one. The bank also calls on the customer to take an active role in giving priority to products and services with minimal carbon footprint.
Banco Itaú Chile invested in a new building that will feature one of the highest honours awarded by the LEED (Leadership in Energy and Environmental Design) to sustainable construction, awarded by the US Green Building Council (USGBC). The features of the building include savings in energy use (up to 50%) and water (up to 75%) compared with traditional buildings, using materials that meet certified environmental standards.
Corpbanca finances the purchase of houses that use eco-technology to optimise the use of natural resources, saving energy such as electricity and gas. This mortgage loan offers discounted rates, with up to 100% financing and 30-year-term payments, as well as discounted mortgage insurance.
Outlook
Environmental sustainability will remain an important trend in the short term and will look to gain strength as more people become exposed to the adverse effects of pollution and the conservation of natural resources. Natural disasters that have occurred across the globe will serve as a catalyst to increase awareness of the efforts towards the earth’s preservation. Participation of banks in carbon credits is a proactive approach that will further bring awareness to carbon reduction. In addition to these measures, advancements in technology have also allowed companies to begin engaging in the digitalisation of paper documents. The conversion will ultimately lead to a decrease in printed materials and will require a cultural change that promotes the use of electronic banking and electronic record keeping in the near future. As a result of these efforts, the CO2 emissions from the consumption of fossil fuels has decreased by 1% in 2011 when compared to the 2010 growth rate.
Future Impact
While the impact of this trend is not yet so clear in Chile and has just started to take hold in the last years of the last decade, the trend is expected to get stronger. There will likely be demand for financing green projects. Banks and other financial intermediaries, such as private stock funds or insurance companies, among others, might play an important role in financing and supporting sustainable projects.
Moreover, the role of banks as the main financial institutions of investment projects faces the challenge of rigorously enforced environmental assessment of projects by the standard measures set out by the principles of Ecuador, which are a set of rules to manage social and environmental risks of investment projects that some Chilean banks adopted in 2003 but have not yet fully realized. This could be a significant step to definitively establish sustainability as a fundamental part of their business strategies. They also face the challenge of increasing some of their costs for launching these kinds of projects and making them profitable at the same time.
