The most important factor in Latin America’s avoidance of Asia-style problems has been the resilience of its banks. While Asian financial systems cracked under the strain of currency turmoil and capital outflows, Latin American ones held firm. With a past history of volatility, banks have discovered the hard way that cautious lending and strong capital support are essential to survival.
This year’s table, compiled by Fitch IBCA, brings together banks with equity bases ranging from $300 million to over $10 billion. It illustrates the relevance of healthy capital support even though many other factors such as asset quality ultimately affect performance.
At the top of the table Brazilian and Chinese banks dominate. Three Brazilian banks are in the top 10 and their identities show the changing nature of Brazilian banking. In fourth place is Bradesco, the country’s largest private bank, with shareholders’ equity of $5,479 million, assets of $55 billion and net income of $783 million. Two places behind is the state controlled Banco do Brasil and in ninth position is Banco do Estado de São Paulo (Banespa) which is due to be privatized. That restructuring is going on is shown by Banco do Brasil’s shift from a minus 134.58 return on equity in 1996 to 9.90 in 1997.
Chinese banks are rather more difficult to unravel than Brazil’s. China is in transition from a state-controlled to a market-run economy and the country’s banks cannot easily be compared with others. Even so, the holding by Chinese banks of the top three positions in the table indicates a weightiness that may be seen more clearly in future.
A number of Asian banks have tumbled as a result of the crisis. Even a strong bank like Thailand’s Bangkok Bank has fallen from seven to 20 with equity shrinking from $4.2 billion to $2.2 billion. Thai Framers Bank has slipped from 16 to 44 with equity falling from $2.4 billion to $1.2 billion. Taiwanese banks, however, relatively unaffected by the crisis, remain in strong positions. Bank of Taiwan moves up from 10 to five in the table with equity rising from $3.6 billion to $5.5 billion.
Foreign investors should be studying the list to decide which are good buys. In Latin America many banks have already gone under the hammer and with new investment are starting to perform better. In Asia the same opportunities are available for the keen-eyed bargain hunter who can see beyond the current crisis.
