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. Chile leads the field with a bad debt loan ratio of just 1.07% this year to October, compared with 1.45% a year ago.
Achilles heel
But Argentina, still recovering from its banking collapse in 2001, has a much higher ratio at 7%, and Paraguay’s NPLs are equivalent to 40% of the central bank’s reserves. “Reserve coverage remains the system’s Achilles heel in regards to asset quality as bank managements struggle to reach, or maintain, the minimum conservative mark of 100%,” Moody’s said in a recent report.