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Non-performing loans: Bad debt levels improve

Latin American banks have come a long way since the financial crises of the 1990s and ordinary citizens are bringing their savings out from under their mattresses like never before.

Loan portfolios have also strengthened to new levels this year, but the ratio of non-performing loans to total loans is still high at around 9%, according to new data from the region’s banking associations. Peru, for one, has made real progress. Bad debts in the Peruvian banking system fell to a 23-year low in 2005 to October to 2.59%, down from 11% in 1998. Spain’s Lima-based Banco BBVA Continental has made the biggest impact in credit control, cutting its NPL ratio to 1.59%. It is now moving into higher-risk loans to small businesses.

Colombia has also done well, moving into high-yield consumer loans while maintaining solid loan recovery levels. Consumer loans rose to 22% of total loans in 2004 and the bad debt loan ratio has fallen to 5%, down from almost 10% in 2000.

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