BCH Banco de Chile

Chile's largest and second-largest banks plan to sell up to a combined $6 billion in U.S. commercial paper to finance their loan portfolios amid volatile funding sources, according to statements from Standard & Poor's.

Emerging-market bank borrowers have switched to bond markets from the bank lending market as traditional European lenders face increasing asset-valuation troubles and large U.S. banks confront greater regulatory pressure.

Chile's largest bank, Banco Santander-Chile (BSAC, BSANTANDE.SN), intends to sell up to $5 billion in commercial paper, a short-term debt instrument which usually matures in less than 270 days and bears a low yield.

Chile's second-largest bank, Banco de Chile (BCH, CHILE.SN), meanwhile, has an up to $1 billion commercial-paper program.

Both entities are the first commercial banks in Latin America to announce commercial-paper programs in the U.S., which come on the heels of a drop in the loan market for emerging-market bank borrowers.

"What we are seeing in emerging markets' credit markets is similar to the U.S. experience post-2007 where a similar rotation from bank loans to bond markets occurred," ING Bank NV said in a research note.

New emerging-market bank lending dropped 51% on-quarter in the first three months of the year, while emerging-market bond issuance nearly doubled during the same period, ING said.

Commercial paper, common among U.S. borrowers, has become an attractive option for banks searching for cheap financing.

"Commercial papers allow banks to access cheap financing as traditional funding sources from European banks have become more expensive," said Diego Torres, head of fixed-income research at local brokerage Munita, Cruzat y Claro.

Banco de Chile aims to increase its trade finance operations and to finance other general corporate purposes with its recently announced commercial-paper program, the bank said in a statement. The program was rated A-1 by Standard & Poor's.

With its own commercial-paper program, Santander Chile looks "to access less volatile funding sources, which could improve its funding cost and ease pressure on net interest margins due to high competition in the Chilean banking system," Standard & Poor's said in a statement. The agency gave an A-1 rating to the program.

Santander Chile executives could not be reached for comment.

-By Graciela Ibanez, Dow Jones Newswires; 56-2-715-8929; graciela.ibanez@dowjones.com

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