Argentina and Venezuela have the lowest impairment rates in Latin America, but this does not reflect healthy economic conditions.

Top 10 Latin American banking sectors by return on assets

Panama is fractionally ahead of Brazil as the most profitable Latin American banking market. Based on 2013 full-year results, return on assets for Panama came in at 8.81%, five basis points ahead of Brazil. Even at the other end of the top 10 performers in Latin America, Colombia recorded return on equity of 6.51%, well ahead of the US or any EU country.

Brazil’s strong performance reflected higher economic growth in 2013, whereas the country has suffered two quarters of year-on-year economic contraction in 2014. The deteriorating economy was already showing up in credit quality in 2013, with total impairment charges at 22.13% of total operating income, fractionally ahead of Mexico. This may, however, demonstrate the higher degree of real economic lending activity in those two countries. Chile, the most developed economy in the region, also has a relatively high impairment rate. By contrast, Panama is a regional centre for private wealth management, presenting a different kind of loan book – impairment charges are only 7.8% of total operating income.

Two other countries where real economy lending penetration is likely to be lower are Argentina and Venezuela, which have the lowest rates of impairment to total operating income. These low impairment charges are definitely not due to stable macroeconomic conditions as both countries have high inflation and exchange rate volatility, including unofficial exchange rates. Low impairment may reflect a reluctance to lend, but could also be a sign of underprovisioning for bad loans. Both countries have substantial state-owned banking sectors, which can be used for policy-based lending by their governments.

The clearest evidence of low lending levels in Argentina and Venezuela is the relatively small contribution of net interest income to total operating income. By contrast, Peru has the highest proportion of net interest income, at more than 72% of total operating income. In Brazil, the proportion is some 10 percentage points lower, at 62.3%, partly due to stronger net fee and commission income – which represents 28% of total operating income, compared with only 18.8% in Mexico. This diversified revenue profile in Brazil may help its banks to withstand the economic downturn and accompanying deterioration in loan books during 2014.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter