How Latin American banks are performing well in the crisis

Latin American economies have felt the effects of the financial crisis, brought on by a global downturn in both demand and capital from the major world economies. The impact for many banks in the region, however, hasn’t been as direct as it has been in other places, in part because they implemented international standards for banking regulation and followed conservative strategies after the regional financial crises of the 1980s and ’90s. McKinsey analyses of the banking sectors in Brazil, Mexico, and Colombia show that these policies should allow them to remain profitable and well capitalized.

Although the economic slowdown has indirectly affected the region’s banks, they will probably remain profitable and well capitalized.

Banks in Latin America are no longer immune to the global credit crisis. True, it’s had little direct impact on them, because they made only limited investments in US and European mortgage-backed securities. Still, a high dependence on exports and commodity prices pushed Latin American economies into recession after consumer spending and industrial production fell in Europe and the United States. As a result, the rate of growth in lending has begun to decline, nonperforming loans are on the rise, and profitability is down.

Nonetheless, McKinsey analyses of the banking sectors of Brazil, Mexico, and Colombia¹ show that strong starting capitalization, liquidity, and capital should allow their banks to remain profitable and well capitalized. Before the crisis, foreign securitized assets ranged from 0 to 5 percent of total banking assets in Brazil, Mexico, and Colombia, and domestic issuance of securitized assets was far below that of the United States and the United Kingdom. As a consequence, Latin America was relatively unscathed when the value of these assets dropped precipitously.

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Source: McKinsey, 31.07.2009