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Latin 100 2004: Strengthened Latin banks start lending

Low interest rates and improvements in financial stability and management in large parts of Latin America are putting banks on the path to increased lending capacity as demand for credit increases.

By Celina Vansetti-Hutchins

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OVER THE PAST few years, Latin American banking systems have been exposed to much turmoil and sharp challenges, allowing bank intermediation to advance at only a modest pace throughout the region while banks restructured, consolidated, and modernized in line with international guidelines.

Although the region remains highly vulnerable to international volatility, its banking systems are experiencing an across-the-board decline in interest rates. These may initially put pressure on profitability but could eventually increase credit intermediation. Latin American banks are, in the meantime, dedicated to managing their cost bases and expanding client and product reach, in search of economies of scale and market penetration to sustain their profitability.

Supporting such goals are the prospects of improved domestic financial architecture, with an emphasis on the much-needed restructuring of bankruptcy laws, as well as on an implementation of the principles of corporate governance as the banking systems adapt to international standards.

Among the region's main banking systems, Mexico, Brazil, Chile, Colombia, and Peru have been progressing along different fronts at various speeds, but Argentina and Uruguay still remain entangled in structural uncertainties.

In Mexico, the internationalization of the system, improved supervision, and relatively stable macroeconomic environment have come together to produce a core group of strong, profitable, and capable banks with a high degree of financial flexibility.

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