Chile's government will boost state bank BancoEstado's capital to the tune of US$500mn or 50% to strengthen and increase its lending activities, the finance ministry said in a press release.
Through the capital injection, BancoEstado will be able to develop financing plans to make the financial sector more dynamic and directly benefit the country's middle-income class and SMEs.
Finance minister Andrés Velasco said the capitalization plan requires a bill he expected to be passed by the end of the year.
"Today, the financial system has liquidity. We want to ensure that liquidity gets where it has to," he said.
"Competition is the best stimulus for banks to finance good projects. And banks will face more competition as BancoEstado will have US$500mn more in capital," Velasco said.
BancoEstado caters to lower-income individuals who are usually underserved by private banks, Santander GBM banking analyst Paula Vicuña told BNamericas, adding the measure will unlikely lead Chile's largest banks to carry out capital injections.
"They have ample capital, enough to finance their operations for at least 18 more months," she said.
The measure is part of a US$1.15bn package unveiled on Tuesday by President Michelle Bachelet to boost the economy. The package includes measures to ease access to mortgage loans by middle-income families through subsidies and strengthening state-sponsored loan guarantee fund Fogape, among others.
BancoEstado is Chile's only state bank and the country's third largest lender.
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