Financial Services Opportunities

An Expert's View about Foreign Direct Investment in Chile

Last updated: 12 Apr 2011

Chile ranks at 30 in the World Economic Forum’s Financial Development Index. It is however 7th in their Financial Stability Pillar and within that Chile’s banking system is ranked as 2nd in the world.

Sector briefing Financial Services Opportunities in Chile Why Chile? Chile ranks at 30 in the World Economic Forum?s Financial Development Index. It is th however 7 in their Financial Stability Pillar and within that Chile?s banking system is ranked as nd 2 in the world. Opportunities exist to tap into the US$148 billion private pension fund system as well as to provide offerings to Chile?s growing number of High Net worth Individuals. Find general information on the Chilean market conditions on UKTI?s website. The Doing Business Guide for Chile gives an overview of Chile?s economy, business culture, potential opportunities and an introduction to other relevant issues. UK Trade & Investment Sector briefing: Financial Services opportunities in Chile number of mergers and acquisitions and whilst Opportunities there is room for more consolidation, multiples are high and further consolidation is likely to In June 2010 Moody?s Investors Service lifted be as a result of international transactions Chile?s foreign debt rating to Aa3, the fourth rather than through purchases of local banks. highest investment grade. It cited the country?s fiscal savings and ?financial Large Chilean retailers (e.g. Ripley and resilience? in the wake of a February Falabella) have developed their own financial earthquake as factors in its decision. Standard products, often in alliance with established and Poor?s rates Chile long-term foreign banks, their main profit instrument being currency at A+, the highest in Latin America. consumer credit. Department stores also play The ratings reflect ?the country's very low debt an important role in financing their customers? burden, a strong political consensus on key purchases. 70% of all credit cards in Chile are economic policies, the credibility of Chile's issued through department stores. Whilst the public institutions, and a track record of percentage of the total amount spent on credit economic growth with stability. Many years of cards is less ? 55% is attributed to non-bank prudent economic management have credit cards (store cards have lower limits and strengthened Chile's fiscal and monetary are issued to people with lower incomes who flexibility. That, along with a flexible exchange do not have access to bank credit cards). rate and a central bank with a track record of These cards appeal to the middle class as they credibility, sustains investor confidence?. offer discounts in stores as well as the ability to pay in instalments. These multiple smaller Banking purchases are reflected in the fact that 73% of Chile?s banking system is the most stable in th individual transactions on credit cards were the Region. Whilst it ranks 30 overall in the made by non-bank credit cards in 2010. World Economic Forum?s Financial th Development Index 2010, it comes 7 in their Private Wealth Management is one of the Financial Stability Pillar and within that Chile?s nd. growth sectors in Chile. There are currently banking system is ranked as 2 around 82,000 groups in Chile with a financial net worth of more than US$ 100,000. Of The World Economic Forum reports that ?At these, there are 324 families/groups who 30th place, Chile achieves the highest score of administer US$ 31.2 billion dollars. The HNW any Latin American country in the overall group (worth between US$1 million and Index, moving up one spot from its 31st-place US$30million) covers over 8,000 groups. ranking last year. It continues to score very   well in the financial stability pillar (7th), which Capital Markets is anchored by a high degree of banking Chile has three main exchanges: the Santiago system stability (2nd). ?. Financial Stock Exchange (Bolsa de Comercio de intermediation remains relatively weak in Chile, Santiago), the Electronic Exchange (Bolsa particularly in financial markets (44th) and Electronica de Chile) and the Valparaiso Stock non-banking financial services (37th), where Exchange (BOVALPO). The principal exchange diminished IPO and securitization activity pull it is the Santiago Stock Exchange. down. Commercial access to capital is a notable strength (8th), contrasting with its In November 2010 the Santiago, Lima and relatively poor access to retail financial Bogota stock exchanges announced the services.? creation of the Integrated Latin American Market (MILA). Phase I will allow As indicated by the World Economic Forum, ?intermediated routing?; meaning that the corporate lending is significant in Chile and it exchanges and their depositories would be reached US$94.0 billion in 2010 (up 4.7% on interconnected but independent trading, 2009). As with other developing countries clearing and settlement platforms preserved. consumer credit plays an important role in the Phase II integration will be through allowing Chilean banking system. Consumer bank intermediaries direct access and lending was up 7.2% to US$19.6 billion in standardization of rules of negotiation and 2010. definition of a model of cross-border clearing and settlement. In December 2010 the Santiago Stock Exchange signed a similar Chile?s banking sector has traditionally been strategic partnership with BM&F Bovespa very competitive. The sector has seen a aimed at allowing order routing between the UK Trade & Investment Sector briefing: Financial Services opportunities in Chile two and to help develop the derivates market purchased in the market (it is followed closely in Chile. by Penta who has 11.7% of the market). The integration between Latin American stock The total of direct premiums in the insurance markets could offer opportunities as local market (life and general) in 2009 was brokers are likely to look for partners in the UK US$6,893 million. 2010 premium figures were to further expand what they have to offer their not available at the time of writing. customers in Chile. They could also provide opportunities for brokers looking to establish in Mutual Funds the Region. At the end of 2010 the total amount managed by Chilean mutual funds was US$38.87 billion. The IPSA is the Chilean Selective Share Price This compares with just US$670 million in Index comprised of the 40 most traded stocks 1990. The current figure represents the on the Santiago Stock Exchange. In 2010 the savings of 1,525,966 Chileans. The IPSA gained 37.6% in peso terms (46% in Association of Mutual Fund Administrators dollar terms) on 2009, with share trading up (AAFM www.aafm.cl ) predicts that, over the 30.5% at US$60.0 billion. coming years the industry will continue to see impressive annual growth. There was only one IPO in 2010 - the Camancha fishing company ? which raised The reason behind the increased popularity of US$233 million in return for a 31.5% stake. mutual funds is Chile's rising per capita Opportunities exist to attract Chilean income, together with economic and political companies to list in London. The Chilean stability, which result in Chileans today having government is looking at ways to attract a greater capacity - and more incentive - to medium size mining companies to list on the save. Moreover, as life expectancy increases, local market (in spite of the importance of and the extended family that once provided mining to the Chilean economy this is not support in old age tends to disappear, there is reflected in their Stock Market) however this a growing awareness of the need to save for strategy has yet to bear fruit and London retirement. remains an attractive alternative. Mutual funds are regulated by the provisions Insurance   established in a body of law created especially Chile has 57 registered for these investment vehicles and by the norms insurance companies: contained in the internal regulation of each 20 general insurance companies, 6 credit mutual fund, in addition to the provisions insurance companies, and 31 life insurance issued by the SVS. The SVS, in turn, is the companies. In addition, it has over 100 organism charged with supervising the reinsurance companies registered with the companies that manage mutual funds Securities and Insurance Supervisor (?SVS?) established in Chile. (within this are a number of subsidiaries with same parent). Mutual funds can invest in virtually any type of financial instrument, although there are some In Chile, insurance companies and related restrictions on, for example, hedge funds and entities (brokers, agents, etc) are supervised derivatives. and regulated by the SVS. The SVS also administers the register of foreign reinsurers, In 2001, a new opportunity was opened up to as well as the register of national and foreign the industry when it was authorised - along reinsurance brokers. with AFPs (pension fund managers), banks, and life insurance companies - to manage The ?Asociacion de Aseguradores? (Chilean additional voluntary pension saving schemes Insurers? Association) is the insurers? trade (APV). This was interpreted as a sign of association in Chile. On its website confidence in the mutual fund industry. In www.aach.cl are up-to-date statistics on the 2010 there was US$1.4 billion of APVs invested market and other significant information. in mutual funds. Following its acquisition of Cruz Del Sur in January 2006, the British insurer RSA became Chile?s largest insurance company. In 2010 it had 15.1% of the General Insurance Premiums UK Trade & Investment Sector briefing: Financial Services opportunities in Chile Pension Funds to Europe, inc. Russia, of which the UK Chile?s private pension funds are managed by represents only 1.9%. Asia captures 25.8%, six management companies called North America 24.1% and Latin America ?Administradoras de Fondos de Pensiones?, or 20.1%. ?AFPs?. The five AFPs are: AFP Capital (created by the merger of AFP Bansander with In order to be able to sell products to the AFPs, AFP Santa Maria ? following the sale of as well as the legal requirements (funds must Bansander to ING in 2007); AFP Cuprum be registered in Chile), other factors need to be (Penta group); AFP Habitat (Camera Chilena de taken into consideration. First, Chile is a la Construccion and Citigroup); AFP Modelo country where personal relationships are highly (Andrés y Pablo Navarro); AFP Planvital (Banco valued. Relationships with the AFPs need to be dell Suizzera Italiana); and AFP Provida worked at and developed and this cannot be (BBVA). The biggest of these AFPs (by number understated. Second, the AFPs tend to follow of members) is BBVA Provida. each other?s lead ? where one goes the others usually follow ? this presents both an The Superintendencia de Administradoras de opportunity and a challenge for UK companies. Fondos de Pensiones (SAFP) is the controlling Schroder Investment Management Limited and organ which represents the State in the HSBC Holdings Plc are examples of successful Chilean pension system. It is an autonomous British fund managers (with 6.77% and 1.68% entity whose head is the Superintendent of the total overseas investments respectively). (appointed by the President of the Republic). Currently Solange Berstein holds the position Under DL 3.500 commissions and charges of Superintendent. The role of SAFP is to arising from investment through portfolio control and supervise the AFPs and the management companies were charged to the Administradora de Fondos de Cesantía (AFC) AFP, whilst commissions and charges arising (who collects, invests, and pays the benefits of from investments in mutual and investment unemployment insurance). funds were charged to the pension fund. As a result, the AFPs preferred to invest in the By law permanently employed affiliates are latter, given that it was more profitable for required to contribute 10% of their salary to them. This distinction has been abolished with their AFPs. The top cap was increased at the D.L. 20.255 and commissions and charges beginning of 2011 to 66UF1 per month, around arising from portfolio management companies US$2,925. Solange Berstein has indicated that will now also be charged to the pension fund, this cap will keep increasing in line with the rather than the administrator of said fund. An INE2 Salary Index so as to be more in line with opportunity therefore arises for foreign market rates. Affiliates who are temporarily portfolio management companies to enter the unemployed are not required to pay in and the Chilean pension market. 35% of Chileans who are self-employed have to date not been obliged to contribute, As part of the Pension Reform, every 24 although following the introduction of DL months the SAFP will tender for the 20.255 they will now be required to do so. administration of the accounts of new entrants. This measure is intended to bring commissions The pension fund administrators (?AFPs?) down, with the entity offering the lowest manage US$148 billion in assets (as at commission winning the process. The last December 2010), of which 80% is allowed to tender, awarded at the beginning of 2010, saw be invested in foreign instruments (reflecting AFP Modelo enter the market. The AFP an increase in November 2010 from the competed with existing AFPs Planvital, Habitat previous limit of 60%). At end of December and Cuprum. Modelo offered a commission of 2010 the AFPs only had 45.1% invested 1.14%, had an existing AFP won, they would abroad, well below both these limits. An have had to extend the same commission to opportunity exists to sell funds domiciled and their entire portfolio of clients, not just those managed in the UK to AFPs as a result of this acquired through the tender process. The AFPs increase, as well as to capture the amounts were competing for around US$19 million in currently being invested abroad. Currently monthly payments, corresponding to around only 15.5% of the money invested abroad goes 600 thousand new members with an average income of around $200,000 (US$413). 1 UF = Unidad de Formento, Chilean inflation linked unit of account. 2 The INE is the Chilean National Institute of Statistics UK Trade & Investment Sector briefing: Financial Services opportunities in Chile PPP Please see our Construction & Infrastructure Opportunities in Chile report. If you have any questions on the opportunities above, contact the UKTI contacts named in this report. Business opportunities aimed specifically at UK companies are added daily to UKTI?s website. These leads are sourced by our staff overseas in British Embassies, High Commissions and Consulates, across all sectors and in over 100 markets. You can be alerted to business opportunities on a regular basis by registering on the UKTI website. Find out more on UKTI?s business opportunities service on the UKTI website UK Trade & Investment Sector briefing: Financial Services opportunities in Chile Major events and activities UKTI contacts Visit to Chile of Lord Mayor of the City of Tom Warwick London Trade & Investment Manager Contact: Claire Rason British Embassy Santiago Email: claire.rason@fco.gov.uk Tel: (0056 2) 370 4174 Time: June 2011 Email: tom.warwick@fco.gov.uk www.ukti.gov.uk Find full details of all events in this country and sector on the UKTI website. Claire Rason New export events are added daily to the site Senior Commercial Officer and you can register to be alerted to them on a British Embassy Santiago daily, weekly or monthly basis Tel: (0056 2) 370 4177 Email: claire.rason@fco.gov.uk UKTI?s Tradeshow Access Programme (TAP) www.ukti.gov.uk provides grant support for eligible Small & Medium Sized Enterprises (SME's) to attend trade shows overseas. Find out more about UKTI support for attendance at overseas events UK Trade & Investment Sector briefing: Financial Services opportunities in Chile Next steps - How UKTI can help ? Arranging appointments British companies wishing to develop their ? Organise seminars or other events for business in the Chilean market are advised to you to meet contacts and promote your undertake as much market research and company in the Chinese market planning as possible in the UK. UKTI?s team in Chile, with its wide local knowledge and This work is available via our Overseas Market experience, can provide a range of services to Introduction Service (OMIS) a chargeable British-based companies wishing to grow their service which assists British-based companies business in global markets. wishing to enter or expand their business in overseas markets. This can include: ? Provision of market information To find out more about commissioning this ? Validated lists of agents/distributors work, or accessing other UKTI services and ? Key market players or potential specialist advice, please visit the UKTI website customers in the Chinese market to find contact details for your local UKTI ? Establishment of interest of such office. contacts in working with you Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published 2011 by UK Trade & Investment. Crown Copyright © UK Trade & Investment Sector briefing: Financial Services opportunities in Chile
Posted: 12 April 2011, last updated 12 April 2011

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