Relatively low global interest rates and yield-hungry investors awash with liquidity have sustained the boom and helped government finances, even as a new mood of fiscal responsibility has gripped the continent.
Despite the arrival in power of a number of politicians from the left who looked like being unfriendly to investors and banks, the banks have not been interfered with and are continuing their profitable run.
The likes of Evo Morales of Bolivia, Daniel Ortega in Nicaragua, Alan García of Peru, Luiz Inácio Lula da Silva of Brazil, and Venezuela’s publicity hungry Hugo Chávez and his Bolivarian revolution have all proved to be pragmatists.
What is striking, though, for the Latin American banking sector is how it is still so small, despite five continuous years of growth. At $66.8bn, the continent’s Tier 1 capital is only 2% of the Top 1000 total, while Latin America’s assets, at $771.4bn, are only 1% of the Top 1000 banking assets. Its profits, at $18.2bn, are only 2.3% of the total Top 1000 profits.
This shows how the rest of the banking world has been growing much faster, arguably taking better advantage of the benign world economic climate in existence at present.
Where the Latin American banks do stand out is in terms of profitability. Return on assets for the 42 Latin American banks in the Top 1000 is 2.36%, the highest ratio of all the world’s regions. Profit on capital comes out at 27.28%, the third highest ratio after that of the US at 28.89% and the Rest of Europe (non-European Union) at 28.02%.
Brazilian banks dominate the list of Latin Americans, as always, and their profitability is head and shoulders above their continental neighbours, with profits on capital at 34.57%. The country looks close to making investment grade.
Argentine banks are continuing to recover from the peso crisis of 2001-2002 and boosted their profitability in 2006 to deliver profits on capital at 20.56%.
Looking forward, the rise in global interest rates may soon start to bite in the region, while inflation has raised its head again, especially in Venezuela and Argentina. But overall, if the world economy does not suffer a major shock, Latin American banks will continue benefiting from the boom.TOP 25: LATIN AMERICA ($M)
