Interview: Rubens V. Amaral Jr
What will be the impact of Latin American banks expanding into regional markets?
RUBENS V. AMARAL JR: We have seen a few acquisitions by Colombian banks taking place, so this could be a good case study. Maybe some banks identified limitations for expansion within the country in the short term, although if Colombia grows as it should, there is a lot of space for the financial institutions to mature.
In general, the process follows certain phases: first, to follow and support clients; second, to grow locally and increase core retail business in the new market; and thirdly, to build a regional platform. We need to distinguish between truly regional aspirations and simply taking advantage of opportunities to enter new markets locally. We are seeing a mixture of both. When one bank makes inroads, its competitors are inclined to follow, and we have seen a number of Colombian banks becoming very active within Central America. Chilean banks are following a similar strategy, moving into Colombia and looking to do the same in Peru. While there is much scope for growth, it is too early to talk about more consolidation.
How is the lack of regional infrastructure investment and interconnectivity being addressed?
AMARAL: Until recently we had insufficient investment in infrastructure throughout the region and this has been a hindrance. Nonetheless, a series of infrastructure upgrades have been planned and executed. In Panama we have the canal expansion, the metro and other investments in roads and utilities, which will help sustain high levels of growth. In Mexico there is a very clear agenda to spur growth through infrastructure improvement and reform, both critical to the growth of the country.
Brazil has been struggling a little in terms of the necessary public investments, which is in turn making the private sector more hesitant. There we can see critical areas where investment has fallen short, such as ports. The cost of production of many goods in Brazil is higher due to bottlenecks related to transportation. Regulatory reform will play an important role in the development of the country, with privatisation of the airports a good example.
Peru and Colombia, on the other hand, have very ambitious plans in terms of investment in a number of sectors, including mining and energy. They are expanding sectors such as construction, supporting the basic capacity to improve infrastructure.
Generally, there is more awareness in the region that investment in infrastructure together with sound public finance is a key component in building a solid platform for sustainable growth. As a whole, Latin America would benefit from more stability in investment policy, which is critical for implementing a long-term strategy so needed in the region.
To what extent can regional credit growth be maintained in an economic slowdown without causing deterioration of the loan portfolio?
AMARAL: Across the region we are seeing a growth in consumer finance as people are beginning to rise along the social scale, expanding the middle class.
Social programmes implemented in different countries, such as in Brazil, Peru or Colombia, are offering millions of people access to credit for the first time. As economies in the region have performed well since 2010, it is natural to see credit expand, although the debt-to-GDP ratio is still small compared to the developed world. In terms of a slowdown in world economic growth, credit in the region has increased as internal markets are stronger and have provided the basis for more sustainable growth. Banks need to look carefully as to how these credit portfolios are being built, and avoid relaxing standards, even more so when there is plenty of liquidity available in the financial markets. On the other hand, the region's regulators are being quite prudent in the management of the different credit cycles, strengthening the financial systems across Latin America.
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