Sunday, February 9, 2014

Analysis of Banco de Chile

Please read the disclaimer here:http://greedydragoninvestment.blogspot.com/p/about-greedy-dragon.html. Enjoy the article, bitches!



In this article, I will be analysing Banco de Chile. The bank’s American Depositary Receipts (ADRs) trade on the New York Stock Exchange. Banco de Chile closed at USD 74.07 per ADR on Friday. Since I can’t make any stereotypical jokes as I don’t really know anything about the Chilean culture, let’s just get down to business.

Banco de Chile generates impressive returns on capital. For the nine months ended September 30, 2013, the company achieved return on average equity and return on average assets of 23.98% and 2.09% respectively (figures are annualized). Part of the reason for the bank’s superior profits is that it has been managed efficiently. The company achieved an efficiency ratio of 46.34% for the 9 months ended September 30, 2013.

Banco de Chile has been growing its deposits at quite a healthy pace. The bank grew its deposits at a compounded annual rate of 5.95% for the 5-year period of 2008-2012. For the 9 months ended September 30, 2013, the bank grew deposits by 7.80%.

Banco de Chile has a decent capital cushion to absorb losses. As at September 30, 2013, the bank had a tier 1 capital ratio (on total assets) and a total capital ratio (on risk-weighted assets) of 7.6% and 13.2% respectively. Banco de Chile’s tier 1 capital ratio (on total assets) and total capital ratio (on risk-weighted assets) were above the minimum requirements by 4.7% and more than 3% respectively.

Management has done alright in terms of managing credit risk. Banco de Chile’s customer loan charge-off rate was between 0.90%-1.42% and an average of 1.11% for the 5-year period of 2008-2012. The bank’s customer loan charge-off rate was 0.98% (annualized) for the 9 months ended September 30, 2013. Banco de Chile’s charge-off rates are reasonable, considering that it has a net interest margin of 4.41% (annualized).

The following is the breakdown of Banco de Chile’s loan portfolio:

Commercial loans
63.13%
Mortgage loans (mostly residential)
22.45%
Consumer loans
14.43%

According to Google Finance, Banco de Chile’s ADRs have a Price/Earnings ratio of 11.88 which I think is reasonable. According to Bloomberg, Banco de Chile has a gross dividend yield of 5.74% which is really sweet. I would be quite happy to take a small position in the bank, but I need to take a look at my portfolio first to make sure that I’m not already overexposed to the banking sector. I think that Banco de Chile is an above average bank and that Chile is a stable country, so if I do decide to invest in the bank it will be for the long-term.


Before I end this article, there’s something I would like to say to all my fellow value investors out there. I get fucking crazy over here at the Greedy Dragon. You know what I do here? I try to value businesses. I’m not like those bitch ass investment bloggers that use technical analysis because they don’t have what it takes to actually research a business. If you guys like my articles, please share it with your friends that are interested in investing as I would really love to have a larger audience to show my passion and ability to. Thank you for reading. Take care and stay rational.

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