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Top Ranking Banks in Latin America

After a decade of unusual success, the LatAm banking sector has slowed its growth


DEC, 2012

By: AméricaEconomía Intelligence

The year 2011 closed with disturbing news. Banco Santander decided to sell its subsidiary in Colombia, which finally Chile'sTop Banks Corp Group bought for US$1.225 million. At the time, the chairman of Santander, Emilio Botin, said the measure was taken to "strengthen the balance sheet" of the crestfallen Spanish giants. As he explained, "Our market share in commercial banking in Colombia is far from the 10% which we aspired to get in the markets where we operate."

The news was thatSantander lost a Latin American country on the map. On the other side of the equation, the novelty ran on behalf of the internationalization of a new Chilean bank, Corpbanca, which did not struggle in acquiring Santander Colombia, with its 2.7% stake market assets of US$5 billion, net income of US$36 billion and 14,000 employees in 78 offices throughout Colombia. Bank is number 100 list.

Once it handled risks of a collapse in commodity prices, with a strong impact on growth and therefore on the ability of the American consumer, the region is still a good deal for the bank. Not as much as before, when the sector grew at a rate much higher than the real economy, but very good today after all, and given the global context.

That's one of the main conclusions drawn from the analysis of the 250 largest banks in Latin America in 2012.

In terms of assets, the 250 largest banks in Latin America amounted to US$3.6 trillion, as of July 2012, down 6.1% from the previous period, when it reached US$ 3.9 billion, representing the largest drop in this indicator since 2005. The caveat: this year the actual exchange rate of the dollar influenced the results, given the volatility of currency that has been used to compare these banks, especially in Brazil. Therefore, this variation must be examined carefully, to hit the sets of 70 Brazilians and 29 Mexican banks that make the list, with Brazil and Mexico the only countries whose banks, in the aggregate and in dollars, decreased by assets (-13.8% and -5.9%, respectively). It impacts the overall results of the ranking, not only because Brazil and Mexico almost have a total of 100 of the 250 banks measured, but also because the top 5 includes all Brazilians megabanks whose combined assets account for 46.2% of assets of all banks.

Considering the variations in local currency, real and Mexican peso, Brazil and Mexico in assets grew by 14.3% and 4.7%, respectively, like all sets of banks in countries of the region present in the ranking, which they did (in dollars) from 1.4% (El Salvador) and 20.5% (Bolivia).

However, there is a clear decrease in the growth rate of the banking sector, which reflects a regional realignment. The sum of the profits of the 250 largest listed banks is US$43 billion, a 12.9% decrease from the previous period, when earnings totaled US$49 billion. This represents, however, a low decline in terms of variation, which occurred between 2008 and 2009, when profits fell 43.4%.

Here's the money

It was a tough year, but many can claim victory. The Venezuelan bankers increased their presence in the ranking, adding 3 new banks:Sofitasa (No. 208), Square (No. 224) and South (No. 249). Thus total assets and loan portfolio in that country increased 49.2% and 56.8%, and profits skyrocketed 129.9%, while deposits grew by 57.6%. Something similar happened in Argentina, whose banks listed in this ranking rose 14.2% in assets, 30.2% of its loan portfolio, earnings in 17.2% and 13.3% in deposits.

These results are explained in large part by the maintenance of high oil prices and soybeans, but also respond to government cutting measures in both countries, which tend to retain currency, generating an endogenous market full of money.

Colombia and Peru are other interesting cases. Both countries, in the aggregate sum of banks by country of origin, increased their assets, loan portfolio, earnings and deposits by at least 15%.

Thus, Colombia becomes a more interesting market. In fact, many of the mergers and acquisitions in the time period took place there. Besides landing CorpBanca, Scotiabank acquired Colpatria for US $500 million. Moreover Colombian bankers also moved in the M&A category when HSBC got rid of several of its assets in Latin America during 2012. Davivienda (No. 28), for example, bought HSBC's operations in Costa Rica, El Salvador and Honduras, for US$ 801 million, and BNG Sudameris (No. 86 and a jump upwards of 11 spots), did the same with the HBSC headquarters of Colombia, Peru, Paraguay and Uruguay, paying US$400 million.

Meanwhile, Peru added a new bank to the list: The Santander Peru (No. 245), and shows consistency in advancing Peruvian banks seen from previous editions. And not grow only in volume but also in quality.

Methodology ranking of biggest banks:

The information presented is for June 2012 unless otherwise noted. The criteria for choosing the 250 largest banks is the size of total assets. The conversion of the different items into current dollars was made according to the prevailing exchange rate at the date of publication. The loan portfolios are gross loan portfolio with performing loan. We considered profits for the period January to June.

In Brazil, the law recognizes two types of banks: commercial and multiples. The first includes a series of activities, such as investment, leasing, brokerage and real estate credit, whereas commercial banks correspond to traditional banking (and deposit).

In Argentina, the estimation of default corresponds to the ratio of nonperforming loans in total loans. Nonperforming loans are: portfolio problems, poor compliance, high risk of insolvency, difficult recovery, recoverable and unrecoverable by technical provision.

Methodology TOP 25 Best Banks:

We do not consider state banks, because, in general, they do not operate under the same rules of supervision. The tool used for this ranking is the CAMEL method, which consists of the following elements:

- C: Capital Adequacy

- A: Assets Quality

- M: Management

- E: Earnings

- L: liquidity

1. Capital Adequacy (15%): measures the financial capacity to absorb losses or impairment of its assets without affecting public deposits.

Accreditation Index (10%): was calculated with the information of how many years the institution was accredited in conjunction with the areas that got credit.

2. Asset Quality (10%): shows how good are the assets of each institution through the

3. Efficiency (25%): measures ratio between the sum of personnel costs and direct operating expenses of the bank, compared to operating margin.

4. Profitability or earnings (20%): the evaluation of the profitability associated with the current and future potential of the institution to generate profits, return on assets, and the balance between return on assets and the cost of funds raised and concepts such as the return of investment.

5. Liquidity (5%): measures the bank's operational capacity to address its short-term financial commitments. Its vulnerability will depend on the balance between the maturities of assets and the maturity of bank liabilities, the risk of road and interest rate risk.

6. Size (25%): a final indicator entering the methodology is the size, as despite the selection of the first hundred banks provides a homogeneous sample, the distance between the number one and the hundred is more than U.S. $ 450,000 million.

Author Biography:

Since the thirdquarter of 1986, AméricaEconomía has been covering Latin American events from a truly local perspective. For 25 years, the AméricaEconomía media group has analyzed business, economy, politics and finance in the region.

Currently they offer multiple issues of their magazine, published in Spanish and Portuguese, reporting, analyzing and anticipating trends, making the publication a powerful tool for executive decision makers in the region. http://rankings.americaeconomia.com/2012/bancos/




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