Banco Santander Chile (BSAN) has reduced its lending to low-income borrowers after the government tightened limits on interest rates and economic growth slowed.

The bank cut credit to low-income individuals to 3%, compared with 8% three years ago, according to BSAN’s director of corporate strategy Raimundo Monge.

He said that BSAN closed 30 branches dedicated to low-income clients of its 504 network, and opened 20 others for customers with higher net worth.

"Chile limits the interest rate banks can charge and the consequence is that lower-income individuals and companies are being left out of the credit market," he explained.

The government enacted a law in December which cuts about 9% from the maximum interest rates on consumer loans.

The maximum rate on consumer loans of less than 200 unidades de fomento or UF ($8,440) and more than UF50 fell to 44.9% on March 2014 from 53.9% on December 2013.

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Chile’s economy is growing at its slowest pace in four years at 2.7% due to the end of an investment boom in the mining industry. But, according to Monge, "mining doesn’t rely on bank loans, instead using bonds to finance itself".

The central bank recently cut its benchmark interest rate for the fourth time in six months, citing ‘a weakening consumer demand’.

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