The alarmist news stories, however, have obscured the healthy state of the banks and of many of the local economies, as evidenced in this year’s compilation of the Top 25 in Latin America.
Putting aside the usual rivalry between Brazilian banks Banco Itaú and Banco Bradesco (whereby the latter replaced its rival in first place in the Top 25 Latin American banks and rose to a 69th world ranking from 107 in 2005) what is most striking is the huge jump in the three top banks’ Tier 1 capital.
Banco Bradesco’s Tier 1 rose 44% to $8.3bn on the back of acquisitions, share issues and a good performance, while Banco Itaú rose 18% to $7bn. Second-placed Banco do Brasil surged 71% to $7.2bn. The strengthening real and the weakening dollar doubtless helped, but acquisitions, share issues and good performance played a major part.
It is not just the Brazilian banks – which always dominate the Latin American listing – that have shown good results. On a regional basis, Latin America has had an outstanding year. Tier 1 capital rose to $52.2bn, 1.8% of the world Tier 1, while assets rose to $611.2bn, or 1% of the total.
What is surprising is that profit, at $17.4bn, was only 2.7% of the total, yet return on capital was 33.24% and return on assets was 2.84% – the highest two ratios for all the regions. The closest runner-up, the US, only managed 29.1% return on capital, while the Middle East was the closest runner-up on return on assets at 2.09%.
In economic terms, everything has been going the banks’ way in Latin America in the past year, such as the rise in commodity prices; booming local capital markets; the search for yield by foreign investors; increasing remittances on the back of a strong world economy; and a surge in consumer finance and in ‘bancarisation’ bringing the unbanked into the system.
In the second quarter of 2006, however, it looks as if this forward momentum may weaken – not least as the appetite for risk diminishes and the fears of a slowdown increase.
The Top 25 Latin banks, however, are well capitalised enough to withstand this.
