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Latin America: The joys of a banking crisis

Latin America's banks are going through a period of turmoil. Mexico's currency crisis and the end of hyper-inflation have badly damaged man of them. But for the best-run banks - and some foreign institutions - the upheaval is also producing some exciting opportunities. David Pilling reports.

From the Rio Grande to Tierra del Fuego, many Latin American banking systems are today in a state of convulsion. Up and down the continent, banks are restructuring their portfolios or unloading bad debts on the state, merging or being taken over, or just plain going to the wall.

The themes are often the same but the underlying causes are specific to each country. In Mexico, banks have been knocked sideways by mounting bad debts caused by the skyrocketing interest rates that followed Mexico's currency devaluation in December 1994. In Brazil, Latin America's biggest economy, the financial sector is recovering from last year's government-imposed credit squeeze and adjusting to life without hyper-inflation. In Argentina, where banks also enjoyed years of very high inflation, the sector has undergone a rapid consolidation, with scores of weaker banks taking their last gasp in 1995 as liquidity drained from the system. Even in booming Chile, where the economy is still growing at 7% a year, there is something of a shakeout in the financial system.

"Latin America's banking systems are at very different stages," says Geoffrey Dennis, Latin American strategist at Bear Stearns. He maintains that "the common, continent-wide theme of rationalization and consolidation" is less relevant than the specific dramas unfolding in individual countries.