Latin American bank management: CEOs focus on home improvement

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FC, Banco de Chile Inevitably, the cost of foreign funding has increased while internal credit demand has suffered a slowdown, especially in consumer loans. In addition, it has started to negatively affect – although in isolated cases – some debtors that used to export to the markets most affected by the credit crunch.

AR, Banorte The effects of the global credit crunch on Banorte have been minimal so far.

Financial penetration in Mexico is still very low, having not yet fully recovered from the collapse of financial intermediation that followed the Tequila crisis of the mid-1990s. Even though lending by the banking sector has been growing at double-digit rates for the past five years after a full revamp of the financial system, there is still plenty of pent-up demand for mortgage, consumer and commercial loans. We believe the Mexican economy will grow in the 2% range in the next 18 months, which, although not robust, is solid in light of the US environment.

There has been a sharp slowdown in lending by banks that were focusing solely on providing commercial and corporate loans – those without a retail presence in Mexico. Some of these international players were forced to pull out of Mexico because of liquidity issues abroad. As a result, Banorte’s loan portfolio has expanded at an annual rate of 28% in the first six months of 2008, well above average in the industry.

The outlook for the next 12 to 18 months is challenging. Lending will undoubtedly slow down in Mexico as a result of credit-quality issues in the consumer loan portfolios of many banks, higher reserve requirements by the authorities and tighter monetary policy due to rising inflation. In addition, a sharp slowdown or recession in the US over the coming quarters will dampen economic growth in Mexico.

CP, First Caribbean Our bank has not been directly affected by the credit crunch. However we are indirectly affected because the associated global credit spread widening adversely affects the value of our dollar investments, with the mark to market largely coming through P&L as these are mostly held in trading portfolios; the associated reduction in dollar interest rates affects returns on our dollar assets; and the resulting US/global slowdown is filtering through into Caribbean economies.

However, our core businesses are performing very well; we announced underlying profits up 12% in our half-year results to April 30.

MC, Bradesco We have not been affected in the slightest. There has been no rise in default, disparity between assets and liabilities, or depreciation of the securities that make up the loan portfolio. The fundamentals are balanced and profitability has been maintained. You only have to compare Bradesco’s net income of R$4.1 billion [$2.5 billion] in the first quarter of this year with the R$4 billion it obtained in the same period of last year to see this. Our financial solidity and ability to generate new business remain intact. Obviously our shares were affected by the global crisis, but even so, the effect was positive since our market value has risen in relative terms and we have become one of the 20 largest banks in the world by market capitalization.

JL, Bancolombia As regards Colombia’s capital market flows, the interest in and availability of debt denominated in dollars has decreased and the government and private sector have been net payers of their dollar obligations. Even with higher local rates the main activity has been towards financing projects in local currency since the credit crunch started. Even if local asset markets have seen less liquidity and more pressure on local rates, we have a mix that has played for better margins on credit assets and nice profits.

Higher local rates are acting on the appetite for local credit as well as more cautious risk assessments made by banks when lending.

In Colombia and other countries we see that the lack of capital of US and European banks has meant they cannot increase their new lending capacity. That will play against the growth of US-denominated loans for regional banks.

WB, Banco de Crédito del Peru The cost of the funds we obtain offshore has increased. Fortunately the funds are available, but at a higher margin.

RS, Banco Itaú First, although we have significant investments in Chile, Argentina and Uruguay, we are primarily interested in Brazil, which has been supported by a good economic environment and strong development, especially when you consider the increased credit demand. That’s why we think that the global credit crunch that began in the US will have less impact on our main market. The second thing is that the Brazilian central bank started a process of interest rate tightening to prevent commodity-price inflation spreading to other parts of the economy. As a consequence, the rates of growth of the global credit portfolio in Brazil will fall, but we believe the pace will still be sufficient to give us have a good performance in 2009. I must emphasize that we are changing our mix of credit, aiming to increase our commercial activities in segments where we have traditionally kept a low profile, such as consumer credit and loans to micro, small and mid-sized companies. This strategy has shown results: the rate of credit portfolio increase is higher than the market average.

DP, Banco Industrial Our investment policies didn’t allow us to invest in high-risk markets such as the sub-prime mortgage market. That is why the credit crunch crisis has not affected us as directly – our funding from international sources has remained stable. Nevertheless, our lenders have implemented stronger credit policies such as reductions in country limits, increased margin and collateral requirements and other restrictions. However, as a key player in the central American financial market and because of our healthy financial position, we have not suffered as other, smaller banks in the region have. At the same time, the supply of funds has diminished and we have been forced to seek alternatives and new mechanisms of funding.