Combined profit for Chilean banks and financial institutions in the first nine months of 2012 declined 15% year-on-year to a consolidated 1.134 trillion pesos ($2.36 billion), the SBIF local banking regulator said Wednesday.

Low inflation during most of the period coupled with higher provisions deteriorated banks' earnings.

In September, Chile's consumer price index rose 0.8% from the previous month and 2.8% year-on-year, while it gained 1.4% during January-September.

The central bank has a 3% target, plus or minus one percentage point. It also expects inflation to end 2012 at 2.5%.

"Banks have increased provisions as they expect a slowdown in Chile's economic growth and a rise in unemployment," said Rodrigo Andaur, chief of research at invertirOnline-FIT.

For 2012, the central bank expects gross domestic product to grow between 4.75% and 5.25%, with a deceleration seen in the final months of the year, central bank Governor Rodrigo Vergara has said.

Unemployment, meanwhile, slightly rose to 6.5% in the July-September period from 6.4% in June-August. Analysts and officials say that at these levels, the economy is nearly at full employment.

The banking sector profit included figures from CorpBanca SA's (BCA, CORPBANCA.SN) Colombian unit, which the Chilean bank acquired from Spain's Banco Santander SA (SAN, SAN.MC) earlier in the year. Next year, CorpBanca will add a new bank to its operations in Colombia as it recently agreed to purchase Colombian Helm Bank SA (PFHELMBAN.BO).

Excluding CorpBanca's Colombian unit, the banking sector consolidated profit was CLP1.120 trillion for January-September, a 17% decline year-on-year.

Total loans, excluding CorpBanca SA's Colombian division, reached CLP96.764 trillion at the end of September, up 9% versus Sept. 30, 2011, with consumer loans at the end of last month totaling CLP12.363 trillion, up 11% from a year earlier.

Mortgage lending, meanwhile, gained 8% year-on-year to CLP23.592 trillion at the end of September.

The Chilean financial system's average net return on equity after taxes reached 14% for the January-September period. This compares with 18% for the first nine months of 2011.

Consolidated net profit at the country's largest bank in terms of loans, Banco de Chile (BCH, CHILE.SN), reached CLP327.91 billion in the first nine months, while its closest competitor, Banco Santander-Chile (BSAC, BSANTANDE.SN) reported CLP278.41 billion in net profit during the first nine months of 2011.

The SBIF didn't provide comparative data from the previous nine-month period for individual banks.

State-owned BancoEstado, meanwhile, posted a first-nine-month profit of CLP73.54 billion while Banco de Credito e Inversiones's (BCI.SN) profit totaled CLP178.22 billion during January-September.

CorpBanca's profit, meanwhile, was CLP82.71 billion, during the first nine months of the year, according to SBIF.

Write to Graciela Ibanez at graciela.ibanez@dowjones.com

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