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DatabankJuly 19 2021

Latam banks grapple with Covid-19 fallout

Leading lenders in Brazil, Mexico and Colombia saw profits slump last year. 
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Many Latin American countries have long been characterised by volatile growth. Brazil, for example, the region’s largest economy, had yet to recover from the destabilising effect of a corruption scandal five years earlier when the Covid-19 pandemic struck.

The country’s four big banks — which are also Latin America’s largest — are strong enough to absorb economic shocks. Still, their profitability took a hit and, while keeping in the black, pre-tax profits at Itaú Unibanco, Banco do Brasil, Banco Bradesco and Caixa Econômica Federal shrunk by double digits. This was up to 87% for Itaú, which also ended the year with a worsened capital-to-assets ratio, according to The Banker’s 2021 Top 1000 World Banks ranking based on data from The Banker Database.

Things were different for BTG Pactual, the fifth-largest locally owned bank (excluding Santander’s Brazilian subsidiary). The bank, which focuses on investment banking, managed to close 2020 with one of the highest return-on-capital ratios in the region at 23.4%. 

Further north, Colombian banks entered the year enjoying a better economic environment. Gross total loans grew for all of the largest five banks, either marginally or up to around a tenth. The rates range from 0.41% for Bancolombia, the country’s largest bank both by assets and Tier 1 capital, to 9.85% for the second-biggest Banco de Bogotá.

Analysts worry, however, that this growth was the result of excess liquidity and government subsidies, which suggests that the expansion of those portfolios may be temporary. Like their Brazilian peers, pre-tax profits were slashed at double-digit rates at all of Colombia’s largest banks.

In another key Latin American market, Mexican banks had to deal with a sluggish government response to the pandemic, which put at risk not only the health of the public, but also that of the economy. 

Nonetheless, Mexican lenders came through 2020 looking relatively unscarred. Some, like market leader Banco Banorte, even expanded their Tier 1 capital and assets size from the previous year. Things may be different by the end of 2021, as analysts fear that the slow vaccination campaign and the still-necessary lockdown measures will continue to affect both lenders and their clients.

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