Presented at the Bankers Association for Finance and Trades 81st Annual Meeting The Global Marketpla

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(No Transcript)
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• Peter Shaw
• Managing Director
• Fitch Ratings
• Trends in Latin American Banking Systems

Presented at the Bankers Association for
Finance and Trades81st Annual MeetingThe
Global Marketplace-At the Crossroads May 4-7,
2003The Arizona Biltmore, Phoenix, AZ
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Agenda

• Foreign banks in retreat
• Brazilian banks weathering the storm
• Mexican banks crowded out?

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Latin America Financial Systems Deposit Market
Share
Foreign 21
National 22
Foreign 25
National 38
Foreign 42
National 45
Foreign 48
National 57
Public 18
Public 34
Public 41
Public 13
Argentina
Brazil
Chile
Colombia
Foreign 8
National 47
Foreign 38
National 42
National 55
Foreign 83
Foreign 49
National 17
Public 45
Public 9
Public 7
Ecuador
Mexico
Peru
Venezuela
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What has been happening?

• Market pressures have reversed regional trend of
  foreign participation over the last 18 months
• Several banks have sold holdings or announced
  intention to do so prominent examples
• BBA/Itau
• BBVA/ Bradesco
• Intesa/Sudameris
• Others reducing presence/exposure by selling
  often significant parts of local business
• ABN retail portfolios across the region
• Deutsche asset management in Brazil

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What does it mean going forward?

• Model of broad regional presence pursued by fewer
  banks
• Long time players remained Citibank,
  FleetBoston
• Newer players scaling back BBVA
• Global consolidation has meant regional presence
  less significant to some
• Intesa/Sudameris
• Two extremes Mexico and Brazil
• Mexico complete domination of private sector
  banks by foreigners part of broader North
  American focus
• Brazil major local players have strengthened
  relative positions, making future entry at top
  end of system more unlikely
• Possible further significant changes Peru,
  Venezuela, Colombia
• Bullet

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Brazilian banks still strong returns...(ROA )

• Strong profitability at leading banks supported
  by environment of high rates, broad lending
  margins, and strong non-interest income
  contributions
• Decline in returns reflects little real balance
  sheet growth in 2002, and sharply higher
  provisions for loans and securities

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Impaired lending (D-H loans/Loans) has withstood
downturn..

• We are comfortable with reasonable consistency of
  classification at these banks
• Downturn has led to shift in portfolio mix, as
  growth in consumer lending has slowed, while
  corporate lending has increased its share of the
  portfolio
• High chargeoffs continue, affecting trends in
  impaired loans
• Criteria are consistent under new regulations

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.while LLR coverage has generally improved (LLR
as of impaired loans)

• High spreads, f/x gains have consistently allowed
  the provisioning to maintain/build reserves
  despite large chargeoffs
• Coverage of actual non-accrual (credits past due
  gt 60 days still well in excess of 100)

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Nominal capital ratios continue strong(CAR )

• Helped by large holdings of zero-risk weighted
  government securities
• Exposure to government securities varies, but
  generally at or over stated equity base

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..but growing Tier II element. (as of total
capital)

• Relatively new availability
• Bradesco and Itau used as primary source of
  funding for acquisitions
• Valuable as source of rare and relatively cheap
  long-term funding

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..and intangibles raise questions of quality(
of total capital)

• Goodwill and deferred tax credits
• Pace of acquisitions, high level of provisions
  generating faster than pace of amortization
• While most generate robust taxable income, full
  realization would take at least 4-5 years

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Private Commercial Banks Structure of the System
(Share by Total Assets)

Domestic17
Foreign 19
Foreign vs. Domestic Market Share
Foreign 83
Domestic 81
End-1999
End-Sep 2002

Individual Market Shares end-September 2002
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Lending to the Private SectorMexico ( of GDP)
Source International Financial Statistics (IMF)
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Total Lending to the Private SectorCommercial
Banks vs. Others ()
Source Banco de Mexico
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Conclusions

• The size of the financial system is limited by a
  low level of savings
• Private lending has been crowded out by the
  public sector
• Private sector has developed alternative sources
  of finance
• Further reforms and more cooperation from states
  and judicial bodies is needed
• Economic stability remains a key factor

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