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DatabankSeptember 24 2013

Latin America leads the profits league

Two Latin American countries score highly for return on equity in their banking sectors, but more highly capitalised African banks enjoy stronger return on assets.
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Venezuelan banks were on top of the world in 2012 in terms of aggregate return on Tier 1 capital. At almost 58%, their aggregate return on Tier 1 capital was almost 14 percentage points higher than second placed Sri Lanka. This is a strong performance from Venezuela, a country subject to periodic liquidity crises and labouring under a dual exchange rate regime. In fact, two Latin American countries feature among the top three banks by this measure, with Argentina recording a 42.4% return.

In both cases, high inflation plays its part, driving up interest rates and generating high returns. Official inflation in Argentina is more than 10% year on year, but a number of economists have been threatened with prosecution for suggesting that the real rate is significantly higher. In Venezuela, meanwhile, consumer price inflation has soared to more than 45% in mid-2013, from 20% at the start of the year. Inflationary pressures are a common theme running through most of the high-return banking sectors worldwide. Inflation rates of 6% or more prevail in all of the top 10 countries except Peru, which keeps price rises to a much more modest 3.3%.

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