Latin Finance - November/December 2012 - 32

Investor survey: Latin banking

Strength in numbers
By John Rumsey ne notable result of the inaugural Itaú 2013 Investor Outlook for the Latin American Banking Sector is the sense of assuredness investors have expressed for the industry – at a time of considerable broader anxiety over the future of global banking. The picture that emerges from the study – produced jointly by LatinFinance and consultancy firm Management & Excellence (M&E) – is of a generally well-regulated industry that features conservative management across broadly resilient economies that, in turn, offer their banking sectors ample scope for growth, not least in areas such as wealth management and corporate bonds. Colombia and Brazil are both surprises in the survey, although for strikingly different reasons. Colombia’s government and banks are increasingly trusted, creating a virtuous circle. Meanwhile, Brazilian bank profits are being curtailed by an interventionist administration. Investors are increasingly focused on the industry. Chevy Chase Trust, with $13 billion under management, is overweight Latin banks, according to David Ross, its Maryland-based director of international equity investing. Asian economies are slowing and bank funding sources tend to be wholesale and therefore not as stable as in Latin America, he says: “We look for balance sheet stability, trustworthiness of management and economic growth and we have gravitated to Latin America.”

In the wake of a landmark investor survey of Latin America’s banking sector, LatinFinance takes stock of a range of views of investment professionals weighing up the merits of a fast evolving industry

Banking on a profit on a much-wider mass affluent market than the traditionally narrow high and ultra-high net worth family market. Wealth is also being on-shored thanks to better regulatory environments; amnesties, in countries such as Brazil; and higher market returns than available in the developed world. Corporate lending is widely seen as an attractive market with huge room for expansion to small and mid-sized companies. Chile leads (7.6) followed by Colombia (7.4) and Mexico (7.1). Chevy Chase is focused on business as opposed to consumer lending, Ross says. He believes it’s hard to keep consumer portfolios ‘clean’ and so they remain susceptible to unexpected rises in nonperforming loans while corporates can be monitored more closely. There are rich pickings in asset classes: Brazilian private equity, Chilean corporate bonds and Mexican corporate bonds topped the list with 7.3 each. Respondents gave corporate bonds the most promising average rating of all asset classes (6.12 for all five countries; 7.0 without Argentina) with the highest absolute scores in Chile, Mexico and Colombia.

Opportunity and risk

In services, wealth management dominates with Chile (7.7) the most promising – and Brazil and Mexico breathing down its neck. The rise of the middle class is causing banks to refocus

32 LatinFinance

November/December 2012

©REUTERS

Latin Finance - November/December 2012

Table of Contents for the Digital Edition of Latin Finance - November/December 2012