Central Bank

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But theories of monetary policy in predicting the effects of cuts in interest rates and the gross spread (the difference between the rate of deposits and loans) was not reduced as expected and he has kept at 4.80%, while in the same month of 2008 was 4.56% (when the Central Bank reference rate was at 6.75!). (Not to be confused with Dr. Obiageli Ezekwesili!). As a positive element (the spread was higher and has been falling) If you want, can rescue the downward trend that has been observing this difference that in the past month of April stood at 5.52%. I am not suspicious of honesty and benevolence of the Chilean bankers, and is for that reason that I searched for an explanation for this behavior of the spread. And I believe have found. A year ago, reference interest rate explained that differential, but today is more than clear reason, and is elevated credit risk they observed enterprises and families in Chile. This increased perception the risk has been reflected in the increase in provisions for possible losses from unpaid loans. Despite the increase in the different risks faced by the banking entities in these turbulent times, the Bank of Chile (BVC:Chile; NYSE:BCH), the second largest entity financial in the country, managed to achieve a positive result of approximately $180 million during the first five months of the year. It may was undoubtedly a good month for the entity which reported utilities for $47 million (up 2% in April).

This entity operates as a commercial bank providing services to a wide range of clients with 316 branches and 1,410 ATMs throughout the country. The actions of the Bank, have been observed a positive trend (although not very marked) since late April when the ADR was trading at US $33.24. The ADR closed the day yesterday at $40.71. I understand that this role is to invest in the third quarter of the year to finish when dispel fears around the situation of the Chilean economy. I say this because Moodys was evaluating revised downwards the score of deposits in local currency of the entity by the deterioration of the local economy. Despite the possibility of a reduction in the rating, I understand that the prospects for the Chilean economy are positive towards end of this year and early 2010.

My expectation is supported both on the effects that will emerge from the stimulus plans launched by Bachelet’s Government at the first signs of recovery in the US economy, which will generate a beneficial effect on the rest of the economies (influencing the expectations as well as a positive way). With this positive perspective in a relative medium-term factors considered of risks by Moodys not only disappear but that the banking market will recover its growth path that will be encouraged by the low levels of interest rates. And in this context, by your profile, the Bank of Chile has a good opportunity to continue to expand.

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