Latin America banking: Risk pendulum swings back to locals
New rules to boost risk-weighted assets at G-Sibs are ramping up the pressure on those banks to change their business model, and become less global. Latin American markets, until recently a battleground for global banks, could now see several of them retreat. Are local banks about to benefit from a less competitive environment?
by Rob Dwyer
Illustration: Kevin February
When UBS’s global banks strategist and Latin America financials analyst, Philip Finch, listened to HSBC chief executive Stuart Gulliver’s comments after disappointing 2014 fourth quarter results on February 23 this year, he realized just how far the risk equation for global banks had shifted.
A decade previously, he had been involved with writing reports about how global banks were well-positioned to enter new emerging market banking markets and leverage their global platforms, scale economies and IT capabilities at the expense of the locals. Then, these market dynamics were seen favourably by international banking regulators, who subscribed to a view that greater geographical diversification provided less concentrated risk and strengthened banks through a business mix that spread risk exposures and earnings.
Now, here was the CEO of HSBC saying that the bank was looking at disposing of its businesses in Brazil, Mexico Turkey and the US. For Finch, the addition of these previously key markets to the list of divestments marks “a new, significant phase” in the de-globalization of what the Financial Standards Board has called Global Systemically Important Banks, or G-Sibs.