Chile's Financial System Braces for Ongoing Global Uncertainty

Chile’s Central Bank has delivered its first half 2025 update on the nation’s financial stability, highlighting the heightened uncertainty in the global economic landscape due to recent escalations in trade tensions and geopolitical events.

The report underscores that global volatility surged in early April when the U.S. administration announced unexpectedly severe tariff measures, triggering retaliatory moves and pushing financial market volatility to levels last seen at the onset of the pandemic. While subsequent negotiations and pauses in tariff implementation have eased some tensions, significant uncertainty lingers about the future direction of trade policy. Market reactions have been pronounced, with atypical behaviors such as a depreciating U.S. dollar and rising long-term interest rates, diverging from typical safe-haven flows seen during periods of turmoil.

Despite these shocks, both global and Chilean financial markets have functioned smoothly, with Chile’s market showing less volatility than many of its emerging peers. Domestic economic imbalances have largely been corrected, household and corporate finances are on a firmer footing, and banks hold robust levels of liquidity and capital. Notably, the countercyclical capital buffer for banks will remain at 0.5% of risk-weighted assets, preserving resilience in the face of potential stress.

Households have benefited from rising incomes, increased savings, and lower default rates, while corporate indebtedness has slightly diminished relative to GDP, though pockets of risk remain—especially among smaller businesses and segments like real estate, where mortgage demand lags and unsold inventories persist. Meanwhile, banks continue to strengthen their capital positions in line with Basel III standards, and their profitability remains healthy.

The principal threat to Chile’s financial stability stems from external risks—particularly abrupt shocks from renewed geopolitical or trade disputes. A sharp dip in global risk appetite could pressure asset prices, trigger capital outflows, and challenge domestic liquidity, especially given a capital market less deep than in previous years following pension fund withdrawals. Local scenarios stress that while the financial system as a whole can withstand severe shocks, vulnerabilities among specific sectors and companies require ongoing vigilance.

Stress tests conducted by the Central Bank show that, even in severe downturn scenarios, Chile’s banking sector remains solvent, able to absorb losses without systemic disruption. The maintenance—and possible future increase—of countercyclical buffers plays a critical role in this robustness. Additionally, regulatory initiatives are underway to deepen local capital markets, modernize liquidity instruments like repo transactions, facilitate the internationalization of the Chilean peso, and ensure measured adaptation to pension and banking reforms.

The report concludes with a cautionary message: while Chile is better prepared than in recent years thanks to past policy corrections and a sturdy financial framework, the nation remains vulnerable to external shocks. The challenge ahead is to restore and deepen the country’s economic buffers—through prudent fiscal management, further capital market development, and regulatory enhancements—to ensure resilience and sustain growth in an environment where global risks are more unpredictable than ever.

This update reinforces the importance of proactive preparation and continued policy collaboration to guard Chile's economy against global economic shocks and to maintain the stability required for sustainable growth.