Latin American banks show the highest returns of any region in the world, but there are some sharp variations within the region.
The banking sector in central and South America has higher returns on capital and assets than any other in the world. The aggregate return on capital of 27.09% far outstrips the next-best region, Africa. This is despite the fact that Latin American banks are among the best capitalised, with only eastern Europe and the Middle East keeping larger equity cushions.
Low bank penetration is one of the factors allowing high returns. Panama stands out as an anomaly, with the large offshore banking industry driving bank assets to more than 200% of gross domestic product (GDP). In many other Latin American countries, bank assets are about 50% of GDP, or much less in some cases. Among the larger economies, Argentina has bank assets of just 35% of GDP, and exhibits the highest return on assets in the region, at 3.37%.
But not all underbanked markets offer such rich opportunities, as risks remain high in some of the least-developed economies. Banks in El Salvador have the lowest return on assets, at less than 0.5%, despite bank assets totaling only 42% of GDP. They also maintain the highest capital adequacy in the region, at 11.14%, suggesting a lack of good-quality lending opportunities.
