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Consolidation fervour goes on

M&As have further cut the number of rankable entries in our listing, which remains dominated by Panama.
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An increasing number of domestic and cross-border mergers and acquisitions may make this year’s Top Central American banks listing the last to be a Top 100 as the number of standalone banks in the region falls. The establishment of bank holding companies for the BAC group and the Cuscatlán group in Panama and their regulation on a consolidated basis significantly reduced the number of banks available to populate last year’s list. Continued acquisitions, such as that of Banco Salvadoreño by Primer Banco del Istmo (Banistmo) in October 2005, and that of Banco de Comercio de El Salvador by Scotiabank El Salvador in May of the same year, has continued the erosion of numbers.

The trend continued in 2006, with Banco Industrial, Guatemala’s largest bank, agreeing to acquire Banco de Occidente, the sixth-largest bank in Guatemala. Further, in January, Banco Industrial announced that it had acquired Banco de Comercio, ranked 14th in Guatemala in our listing. In the same month Banco General in Panama and Banco Continental de Panama announced they would be merging and creating a new entity, BG Financial Group.

Panama again dominates our listing both in terms of the number of banks represented, up three from last year to 39, and in aggregate financials, accounting for 61.8% of aggregate Tier 1 capital, 52.9% share of aggregate assets, and 56% of aggregate pre-tax profit. Panama’s Corporacion UBC International heads the list as bank numbers in Panama continue to grow; banks elsewhere in Latin America see it as a favourable place to establish international subsidiaries because of the regulatory environment and the tax regime. Banco Azteca (Panama) and Banco Corfivalle (Panama) are two of the latest arrivals, with parent banks in Mexico and Colombia respectively.

Guatemala has the second largest representation in the listing, with 20 banks, followed by Honduras with 13 and Costa Rica with 12. Like last year, only two of the top 10 banks are headquartered outside Panama; Banco de Costa Rica at eighth and Banco Agricola from El Salvador at ninth.

Total Tier 1 capital for the 100 was $6.948bn, a rise of 4.4% on the previous year. Aggregate assets were $75.035bn, up 14.8%, and aggregate pre-tax profit was $1.451bn, a rise of 13.5%.

Poor disclosure

Non-performing loan disclosure across the region remains poor, although asset quality is perceived to be good and loan-loss provisioning remains more than adequate. Strong growth in higher margin, but higher risk, loans may lead to increases in non-performing loans as loan portfolios mature. However, barring a major economic crisis in the region, this should be minimal.

The opportunities presented in the region in personal, consumer and mortgage business lines have further attracted the attention of the multinationals, as we suggested last year when GE Capital acquired a 49.99% stake in BAC International Bank. In the second quarter of 2006, HSBC Holdings agreed to acquire Banistmo, the largest banking group by assets in the region, and in the final quarter, Citigroup acquired Grupo Financiero Uno, which includes the Banco Uno banks in the region and the Cuscatlán bank group, which heads our listing by Tier 1 capital as Corporación UBC Internacional.

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