LatinFinance - November/December 2014 - 24

less risky products, particularly payroll
lending and mortgages. The shift to more
conservative products has pushed down
delinquency ratios since 2012, he says.
Angelotti does not expect a switch back
to faster expansion of lending in riskier
products, such as credit cards, until a
decisive rebound in Brazil's economic
performance, something he does not
expect in 2015. "We are reducing the risk
in our portfolio," he says. "Looking to the
future, payroll lending and mortgages will
continue growing at a faster rate."
Mortgages and payroll lending are likely
to increase around 30% annually for the
next two years, Angelotti says. That is as
much as double overall loan growth at the
bank, and within the system, of between
10% and 15%, he says.
Mortgages help build relationships with
customers over the long term, he says,
making it easier to sell savings accounts,
credit cards, and other fee-based products.
"There's huge demand for these products."
Angelotti says the turn to products with
lower risks does not imply less profit, as
better asset quality bolsters overall returns.
But research from Barclays says the switch
does hurt margins. In an October report
on Brazil's banks, Moody's also said the
switch to lower yielding products, coupled
with higher funding and provisioning costs,
would drag on privately-owned banks'
earnings.
Asset quality is likely to fall as continued
economic lethargy compounds individuals'
difficulties in paying back loans, according
to the ratings agency. Brazil's household
debt, at 20% of GDP, is much higher than
the regional average.
Tequila sunrise
Mexico could be an exception to the trend
for slow rates of new credit. There, lending
is still under 20% of GDP, less than half the
level of Brazil or Chile.
"Mexico is behind the curve in terms
of financial penetration," says Alejandro
Valenzuela, chief executive of Banorte, the
country's largest locally owned lender.
That is a consequence of the Tequila
crisis in the 1990s, says Valenzuela. But
structural reforms over the past two years
are improving the country's economic
potential, he says. Additionally, financial
reform earlier this year has, among other
things, given lenders more certainty on
their ability to collect loan guarantees.
"There's a huge opportunity to grow the

24 L ATINFINA NCE.COM - November/December 2014

ALEJANDRO VALENZUELA
BANORTE

"MEXICO IS BEHIND
THE CURVE IN TERMS
OF FINANCIAL
PENETRATION.
THERE'S A HUGE
OPPORTUNITY TO
GROW THE SECTOR.
MEXICO HAS MUCH
BETTER PROSPECTS
FOR THE BANKING
SECTOR"

sector," he says. "Mexico has much better
prospects for the banking sector today."
Small and medium-sized enterprises,
and areas with Mexico's demographics on
their side, like home financing and insurance and pensions products, offer particular scope for new credit, he says. Banorte
expects to gain share in credit cards, where
it accounts for 7% of the market - less than
half its share in other products.
"I see an uptick of housing development
and mortgage finance in Mexico over the
next decade," he says.
Financial difficulties among the Mexican homebuilders hit mortgage lending
over the past year, but it is a temporary
problem, Valenzuela says, and progress is
being made on restructuring the developers' debts. Banorte continues lending to
developers.
"We're seeing the second tier housing
developers growing at a good rate," he says.
A rise in borrowing costs is unlikely to
cause problems, he says. Mexican interest
rates are so low already that pass-through
from expected US hikes is unlikely to make
home loans unaffordable.
"Eleven years ago the best rate for a 20year loan was around 17%; now you can get
one below 8%," he says.
Even in South American countries like
Peru and Brazil, bankers say they expect
demand for some products to keep rising.
Mortgages and payroll lending are among
these, as is infrastructure lending: part of
the macro-economic rebalancing from

domestic consumption.
In Brazil, market expectations for infrastructure funding needs amount to 1 billion
reais ($400 billion) over the next three to
four years, according to Fitch. Moreover,
private banks will be expected to take on a
larger proportion of such lending as stateowned banks, facing capital constraints
after years of rapid expansion, lose their
appetite for credit.
Gregoire de Lestapis, BBVA's head of
corporate and investment banking for Latin
America, immediately points to infrastructure - including roads, and energy - when
asked where he expects quickest credit
expansion. With better regulatory frameworks in place for private financing, infrastructure in Latin America is a long-term
opportunity, likely to last decade or more,
he says.
"We like to look at the infrastructure
space as an ecosystem," says de Lestapis.
"It's not just about lending and advising
sponsors and the government. It's project
finance and syndicated loans, bridge facilities, managing debt and maybe equity
issuance, and providing working capital
for small and medium-sized enterprises
around a project, and banking the project's
employees."
Torres at BBVA Continental says corporate lending in Peru will grow faster than
retail next year, although mortgages will be
more resilient than other retail products.
The change would mark a reversal of a
multi-year trend for the pace of retail lending to outstrip corporate credit, he says.
Torres also points in particular to infrastructure, where the expansion of the Lima
metro is one of the country's biggest projects - and to energy, where a new pipeline
is seeking $4 billion in funding.
A less accommodating environment for
Peruvian credits in the international bond
markets, as monetary policy tightens in the
US, will drive corporate lending, he says.
"Corporates will finance from local banks
as interest rates go up," he says.
However, given the low level of banking
penetration, and the substantial scope for
the growth of the middle classes over the
longer term, Torres says the balance will
eventually swing back to consumer and
small business lending: one factor why
microfinance continues to attract interest.
Banking penetration will rise, he says:
"In the long run, we expect retail banking
including consumer lending, mortgages
and SME loans to continue growing at a
faster pace than the corporates." LF

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LatinFinance - November/December 2014

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