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Corpbanca’s Funding Costs Rise on SMU Contagion, CEO Says

Corpbanca profit may be cut as much as 5 billion pesos ($9.8 million) this year as funding costs rise on concern the Chilean lender faces losses tied to sister company SMU SA, Chief Executive Officer Fernando Massu said.

Institutional clients in Chile have demanded a premium of as much as 1 percentage point to lend to Corpbanca since mid-July, Massu said in an interview in his office in Santiago. SMU, which like Corpbanca is controlled by billionaire Alvaro Saieh, disclosed July 11 that it had breached the terms of its bond agreements.

Corpbanca’s bond yields have jumped and its shares have dropped even as the lender said its direct and indirect loans to SMU amount to $268 million, or 1.2 percent of the total outstanding. The bank has scaled back lending to corporate clients in Chile and is selling loans to counter the losses, Massu said.

The increased funding costs are unjustified, Massu said.

“A premium like this only applies when you have a solvency issue and Corpbanca doesn’t have a solvency issue,” Massu said. “I think we need a strong sign of support from Chile’s regulators to restore the market’s confidence in Corpbanca.”

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