Banco De Chile: Raising Fair Value Estimate to $25 on Higher Net Interest Income, Lower Credit Costs

We are increasing our fair value estimate from Banco de Chile to $25 per ADR share from $23. About $1 of the fair value estimate increase comes from lower projected credit losses. While the bank's credit costs have risen from unusually low levels last year, they have done so less than we had initially anticipated. With total past-due loans at 1.49% of total loans in the third quarter, only modestly higher than the 1.33% recorded last year, the firm's credit quality appears stable. Additionally, the benchmark rate in Chile is now down to 5.25% and unemployment has been stable for over a year, creating limited prospects that economic conditions will pressure the bank's credit costs.