The economies of central America have been growing rapidly since the end of the pandemic. Some of this is the natural rebound of economic activity among countries that have outsized tourist sectors; and increased spending in this sector is one of the leading themes of the past couple of years.
However, there is a lot more going on. The nearshoring trend – with North American companies searching for sources of products and services closer to home – has become a strong tailwind for many of these economies. Lower energy prices have also provided a better cost base for economic development and some countries, such as the Dominican Republic, have put together such strong decades-plus growth that they are nearing developed market status.
The region has also developed a geopolitical story, with China focusing on strengthening economic and trade ties with it. Since 2017, five central American countries have severed ties with Taiwan in favour of China: Panama, Dominican Republic, El Salvador, Nicaragua and Honduras. Currently only Guatemala and Belize in the region maintain diplomatic relations with Taiwan.
China has been aiming to reinforce this political realignment with money. In 2022 trade from central America to China came to more than $1.7 billion; the trade deficit for the region during the same year was $14 billion. However, the US remains a far more important export market. In comparison, El Salvador alone exported $1.6 billion worth of goods to the US in 2022, nearly as much as the whole region exported to China that same year. El Salvador’s exports to China in 2022 were only worth $49.6 million dollars in 2022.
The region’s banks are taking advantage of this trend. The US has been pressured into trying to counter China and the banks have been taking advantage of this dynamic to build a regional franchise. For example, the region’s best bank, Banco Lafise, led by chief executive Roberto Zamora, has been actively expanding outside its Nicaraguan base in recent years and has secured a $100 million loan from the US Development Finance Corporation to help it develop its small and medium-sized enterprise business in Costa Rica, El Salvador, Guatemala, Honduras and Panama.
Banco Lafise has been actively expanding outside its Nicaraguan base in recent years
Similarly Lafise is growing its agricultural loan partnership with USAID. These loans are a good example of how the bank is able to finance its portfolio growth while also demonstrating its credible regional presence. Lafise also secured regional financing from Cabei and it is now one of the top-five fastest growing banks in Panama and Costa Rica – the biggest and most important central American markets.
In the Caribbean, Lafise is also the fastest growing bank in Dominican Republic and grew its corporate loan portfolio by 51.1% in 2023. Banco Lafise is still far from the largest bank in the region, but it is certainly one of the most ambitious and it’s moving fast, exploiting partnership opportunities to develop loan portfolios and extend its regional banking services in an increasingly integrated regional market.
