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Financial crisis seen lasting one to three years in Latin America and the Caribbean – Bankers poll

A majority of Latin American and Caribbean bankers expect the crisis in financial markets to last between one and three years, according to the results of a poll released today by the Inter-American Development Bank and the Latin American Bank Federation (FELABAN).

More than 100 executives from large, mid-size and small banks from 19 Latin American and Caribbean countries took part in the survey conducted at the end of 2008, after the global financial crisis started to hit this region.

The poll was commissioned by the Multilateral Investment Fund (MIF) and the Inter-American Investment Corporation (IIC), affiliates of the IDB group, and by FELABAN, which represents more than 500 financial institutions in Latin America.

Two out of three bankers surveyed said the financial crisis would affect their domestic markets between one and three years. Mexican bank executives were somewhat more optimistic than their Central American and South American counterparts.


Regarding the effects of the crisis, six out of 10 executives forecast a decrease in the availability of funding for their financial institutions. Other expected effects were a decline in remittances—the money sent home by migrant workers—and in trade financing.

The survey, which on previous occasions was conducted to gauge banks’ views on small and mid-size enterprises (SMEs), found that bankers anticipate that these businesses will face higher interest rates and stricter lending requirements. In Latin America and the Caribbean, SMEs range from 10 to 250 employees.

Nevertheless, nine out of 10 bankers said their institutions remain interested in working with SMEs, providing them services such as working capital loans, credit lines, advice on export deals and payroll and payments management.

Commenting on the prospects of banking in the region, FELABAN President Ricardo Villela-Marino recently said: “Overall, Latin American banks are solid, solvent, liquid, with low levels of arrears and with provisioning and capital adequacy levels above Basel requirements. This will surely help Latin American banks get through the international crisis in better shape than in the past, allowing them to continue serving this segment of the market.”


As in past polls, bankers underscored the importance of positive cash flows and good credit track records among their requirements for approving loans for SMEs. Less importance was assigned to the availability of collateral or credit guarantees.

“Banks have reacted to the crisis in different ways,” said Carlos Roa, who heads the Financial Institutions Unit at the IIC, which specializes in SMEs. “Some strengthened their liquidity and capital positions, and stand ready to increase their market participation, albeit at slower growth rates and using more selective criteria for credit approvals.”

“Other banks are more focused on maintaining their current levels of exposure, assisting their clients with working capital rather than financing new investments,” he added.

 

An auspicious trend arising from the poll was the increased interest expressed by bankers in microfinance, which caters to businesses with fewer than 10 employees. Large banks see this activity as an attractive alternative, more so than small financial institutions.

Four out of 10 executives said their banks are already involved in microfinance, while three out of 10 said they had plans to expand into that activity in the short or medium term.


“It’s remarkable that, in the midst of a crisis, banks would be more interested in microfinance,” said Sandra Darville, chief of the MIF’s Access to Finance Unit. “We think it reflects the degree of maturity microfinance has reached in our region.”

According to the MIF, there are nearly 8 million microcredit clients in Latin America and the Caribbean. About half of them are served by some 500 specialized microfinance institutions. The others work with banks, credit unions and government agencies.

The survey carried out by the Argentine polling firm D’Alessio IROL identified as large banks those institutions with more than 5,000 employees and over 150 branches. Small banks were those with fewer than 300 employees and 10 branches.

The MIF, an autonomous fund administered by the IDB, supports private sector development, with an emphasis on microenterprise. Over the past 15 years it has been one of the leading promoters of microfinance in this region.

Besides providing financing to SMEs, the IIC runs the FINPYME program, which helps small companies carry out financial and operational diagnosis to improve their prospects of gaining access to bank credit.

The IDB is the leading source of long-term financing for development projects in Latin America and the Caribbean. The global financial crisis will be one of the main topics of discussion of the IDB Board of Governors annual meeting, which will take place March 27–31 in Medellín, Colombia.

Founded in 1965, FELABAN is a not-for-profit organization that groups more than 500 financial institutions through national associations in 19 Latin American countries.