What is your outlook for the Chilean economy?
The Chilean economy is just starting to come out from an extremely negative cycle; we are finally beginning to enter a period of economic growth, as the market expectation is that the Chilean economy will expand an estimate of 3% over the next 18 months. The recovery of the Chilean economy is driven mostly by the increase in copper prices (the country’s main export) and to a lesser extent by a surge in investment especially in private investment. However, it is mostly the appreciation in copper prices combined with an increase in government spending that has helped the economy to bounce back. As long as the commodities prices keep rising, we can expect this rally to continue; high commodity prices are always beneficial to the Chilean economy. We can also mention, to a far lesser extent, the impact of low-interest rates: the decision by the Central Bank to keep inflation rates low has boosted the liquidity in the market, which as a result has contributed to the recovery of the national economy.
What is the bank’s funding strategy for the upcoming year?
The last transaction the bank did was in Australian dollars; so far, the bank has done six non-USD issuances. We are constantly analysing different markets and currencies, so when a currency is convenient for us in relation to our local financing, we can issue. We have done transactions in Australian dollars, Swiss francs, euros and yens; we are very active in the yen market at the moment, having issued almost US$1bn Japanese currency. This is of course in addition to our regular local issuances - we have sold around US$700mn and US$800mn in local markets in recent years, and this year we expect to do the same. Our next transactions will include a local issuance in UF - we are just waiting for the most favourable moment to tap the market again.
Have you considered diversifying the bank’s investors base?
Most of the investors working with us are institutional investors: investment funds, pension funds, insurance companies and asset managers. However, we are always looking for opportunities to explore new liquidity pools; this is one of the main reason we do a continuous effort to tap the international markets frequently. But we can only do international transactions if the financing costs are similar to the ones we get locally, due to internal policy constraints: the bank could never pay one investor more than what it pays another.
This has been the year of EM securities and with Chile becoming Eurocleared this year, are you seeing an increase of international investors interested in the bank?
This year we saw an increase in foreign investors mostly due to the fact that interest rates have remained on record lows throughout most of the developed world. Investors were expecting a rise in interest rates a lot sooner, but as the central banks push the rates down, capital holders have become impatient, developing an appetite for issuances with a similar credit profile as ours. Banco Estado has become a very convenient destination for international investors.
The Chilean government is looking to reform the country’s capital markets, what is your view won this endeavour?
The changes in the financial markets that the government is seeking to pass through Congress are centred around two main points: reforming the banks and making sure they adhere to Basil standard, and the formation of a new Capital Markets Authority. Basil and the banking reform will upgrade the Chile’s banking system to international standards, which we fully support. However, the most relevant part of this reform package, which has constantly been overlooked by the media and the financial community itself, is the introduction of a new regulation authority. Chile’s regulatory entity will go from a simple body with one administrator to a system of corporate governance in financial regulation, which will provoke a significant shift in the regulatory framework and help align us with other developed countries. Four of the members of the new committee will be named by the Senate, which guaranteed that this commission will function autonomously and independently. This is the most significant improvement of the new framework, which is going to put Chile’s capital markets in the highest level of international standards.