Latin America: Andean banks tough it out

Andean banks have battened down their hatches to weather a gathering storm. At home, banks have seen non-performing loans soar as economic growth has slowed and as tight monetary policy has pushed up interest rates. Abroad, the doors to credit lines have closed after the Russian crisis and will open only occasionally even for those able to pay emerging markets' higher risk premiums. Hard-pressed governments - often new to office and already struggling to rein in ballooning fiscal deficits, accelerating inflation, and plunging exchange rates - have faced urgent demands to provide liquidity to struggling banks and stop the holes in leaky regulatory frameworks. Some smaller and weaker institutions have already gone under or been bailed out.

Across the region, 1998 was a tough year for borrowers and their bankers. As real GDP growth slowed, as trading conditions worsened and as interest rates rose, bank loan portfolios deteriorated. In Peru, past-due loans...