Banco de Chile - Growth & Income

Banco de Chile is Chile's largest bank. Founded in 1893, several big mergers in the last decade have pushed the bank to its current size with over 398 branches and 1500 ATMs. It operates on both a retail and wholesale market, which includes international banking and banking for large companies.

Banco de Chile also has 8 non-banking subsidiaries in Securities Brokerage, Investment and Mutual Funds, Collections and Insurance.

Net Income Rose 47.2% in the Second Quarter

On Aug 3, Banco de Chile reported its second quarter results which showed improving conditions across several metrics.

Net income rose 47.2% to Ch$107,808 million from the second quarter of 2009. It was also up 6.9% from the first quarter of the year.

The bank posted a solid ROAE of 30%, its highest in the last 5 quarters and well above the 21.2% in the second quarter of 2009. The quarter was aided by a decrease in its credit risk charges as the local economy improved and collections eased.

Operating revenue also rose by 11.3% over last year's second quarter boosted by a rise in interest revenue which was a result of a growing loan portfolio, mainly in residential mortgage and commercial loans.

Loan Loss Provisions Fall

Like all the other financial institutions, 2009 was a rough year for loan losses. Banco de Chile saw significant improvement in that area as the local economy improved.

Loan losses fell 42.3% to Ch$35,669 million from a year ago and were also 33.5% below the first quarter levels. The bank saw improvement in some sectors, such as fishing and retail, compared to the first quarter of the year.

Higher consumer confidence and an improving employment outlook boosted the retail segment during the quarter.

Banco de Chile, however, is still being cautious about the forward outlook for loan losses. Isolated credit risk instabilities are still a possibility, especially from some of its corporate customers.

Double Digit Growth Expected in 2010

Analysts are bullish on Banco de Chile in 2010. It is expected to grow earnings by 46.5% for 2010 and another 12.4% in 2011.

Of course, it hasn't been that hard for the financials to post better year over year numbers given what was happening during the financial crisis. But Banco de Chile was always profitable during that period, making $3.70 per share in 2009.

Zacks Consensus Estimates Move Higher

1 estimate out of 3 has already risen since the Aug 3 earnings announced for 2010. It has pushed up the Zacks Consensus by 9 cents to $5.42 per share during that time.

2011 has also risen by 6 cents to $6.09 in the last week.

Dividend is Juicy

Banco de Chile pays an attractive dividend to shareholders currently yielding 3.2%. This is much higher than its industry, which is currently averaging just 2.4%.

It also did not discontinue its dividend during the financial crisis as many of its competitors around the globe did.

Banco de Chile is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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