Banco de Chile -- Moody's rates A1 Banco de Chile's $500 million senior unsecured notes

Rating Action: Moody's rates A1 Banco de Chile's $500 million senior unsecured notesGlobal Credit Research - 07 Dec 2021New York, December 07, 2021 -- Moody's Investors Service ("Moody's") has today assigned a foreign currency senior unsecured debt rating of A1 to Banco de Chile's proposed $500 million fixed-rate senior unsecured notes. The notes have a 2.990% fixed coupon and will mature on 9 December 2031. The rating has a negative outlook.The following rating was assigned to the $500 million fixed-rate senior unsecured medium-term notes issued by Banco de Chile:Foreign currency senior unsecured debt rating: A1, NegativeRATINGS RATIONALEBanco de Chile's A1 senior unsecured debt rating acknowledges the bank's solid profitability that is supported by a diversified revenue base and robust risk management. The bank's access to low-cost retail deposit funding is a positive driver to its credit strength. Conversely, and despite the recurring internal earnings generation, Banco de Chile's capital position remains below that of its global peers whose baseline credit assessments (BCAs) are also at baa1, though above regulatory minima and those of local peers. The A1 rating also incorporates our assessment of a very high probability of support from the Government of Chile (A1 negative) in the event of financial stress because of the significant systemic consequences of an unsupported failure. Our assessment factors in the Chilean authorities' track record of providing support to distressed financial institutions in the past and the bank's large deposit franchise.Banco de Chile's conservative risk management framework and a portfolio that is well diversified by industries will continue to offset asset risks stemming from a moderation in economic recovery and policy risks in Chile particularly. We expect the Chilean economy to slow to a 3% GDP growth in 2022, after a strong 2021, constrained by uncertainty related to the outcome of the process of drafting a new constitution. The nonperforming loan ratio will deteriorate in 2022 from a record-low 0.86% as of October 2021 but will remain manageable.With leading market shares in commercial banking, treasury, asset management, as well as fiduciary and transactional services, Banco de Chile has been able to maintain a diversified revenue stream, a risk-based pricing strategy and low funding costs, which have supported profitability through economic cycles. The bank's profitability is also complemented with fee income, that has historically contributed to roughly 20% of net revenue.Even as Banco de Chile's capitalization is above the Chilean regulatory minima and is superior to local peers, Moody's-adjusted tangible common equity to risk-weighted assets of 13.1% as of September 2021 is below the 16% of its global peers. As such, capitalization remains a limitation for the bank's standalone financial strength when compared to global banks with BCA of baa1.In terms of funding, Banco de Chile has one of the most solid funding profiles among Chilean banks with steady access to a large base of retail deposits, that provides low funding costs, and mitigates its exposure to institutional resources that accounted for 32.6% of tangible assets in September 2021.The bank's A1 senior unsecured debt rating benefits from three notches of uplift from its baa1 Adjusted BCA through the incorporation of Moody's assessment of very high support from the Government of Chile (A1 negative). As of September 2021, Banco de Chile was the third-largest bank in Chile in terms of domestic deposits, which supports our view that, in case of stress, the government of Chile would have the willingness and capacity to provide support to avoid systemic consequences of an unsupported failure. As a result, the negative outlook on the rating is aligned to the negative outlook at the sovereign debt rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGBecause of the negative outlook on Banco de Chile's ratings, a rating upgrade is unlikely at the moment. However, the outlook on the bank's ratings could return to stable if the outlook on Chile's sovereign rating is changed to stable.Banco de Chile's BCA could be lowered in case of a higher-than-expected increase in asset risk, a significant weakening of profitability and a decline in capitalization. A downgrade of the BCA could also lead to a downgrade of the bank's debt and deposit ratings. If Chile's sovereign rating is downgraded, in line with the negative rating outlook, Banco de Chile's ratings would also be downgraded.The principal methodology used in this rating was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Felipe Carvallo VP - Senior Credit Officer Financial Institutions Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. 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