Banks in Latin America have enjoyed a prolonged credit boom which, coupled with strong and stable economic growth, has turned the region into a strategic market for many international banking groups.
However, Venezuelan President Hugo Chavez's announcement on July 31 that he planned to nationalize Spanish bank Santander's local subsidiary, Banco de Venezuela, has raised concerns over a possible trend of increased political risk in the region.
Foreign acquisitions. The last several years have seen international banks spend billions of dollars on acquiring local banks in Latin America. This has increased market concentration, with fewer but bigger players in many markets:
- Santander is the largest bank in both Spain and Latin America. Last year, it acquired Brazilian Banco Real, owing to its participation in the three-bank consortium that acquired Netherlands-based ABN Amro. This will more then double its market share to 12% in the fast-growing Brazilian market.
- Canadian Scotiabank has been one of the most aggressive regional buyers in the last few years. It made its biggest acquisition last year, paying 1.02 billion dollars for Chile's seventh largest bank, Banco del Desarrollo. So far this year, Scotiabank has acquired three smaller banks in Peru, Guatemala and the Dominican Republic.
Rising political risk? However, the proposal to nationalise Banco de Venezuela, has raised concerns the prospect of a trend towards increased government involvement in the banking industry.
- Banco de Venezuela is the country's third largest, with 11 billion dollars in assets. Santander had started talks to sell the subsidiary to a local bank, but the government did not approve the takeover, proposing instead to take over the bank to "serve the people". Chavez proposes to negotiate fair compensation, which according to market observers could be in the 1.2-1.9 billion dollar range.
- Spain's second largest bank, BBVA, also faces risks in Bolivia, where the government of President Evo Morales said in July that it aims to nationalize the country's private pension system. BBVA and Swiss financial services group Zurich own the two private pension fund managers that make up the private system, which was created in 1996 and has around 3.4 billion dollars in pension assets under management.
- Brazil's largest bank, federal government controlled Banco do Brasil (BB), started talks in May with Sao Paulo state bank Nossa Caixa with the aim of taking over the latter. The move provoked loud protests from the country's biggest private sector banks, which called for Nossa Caixa to be sold through an open auction. With the government's blessing, BB began taking over smaller state and federal government-run banks last year in a bid to defend its position as Brazil's largest bank. Those deals were largely ignored by the private sector but Nossa Caixa is a different matter, being Brazil's seventh largest bank, with around 26.7 billion dollars in assets, and a key player in the country's richest state.
According to Spanish Economy Minister Pedro Solbes, the plan to take over Banco de Venezuela is not in itself problematic, provided an "acceptable price" is agreed. However, the rejection of the bank's private sale may limit Santander's options (and indeed the bank's decision to sell its profitable Venezuelan subsidiary has raised speculation over its motives for leaving the market). In more general terms, the nationalization may heighten concern over the extent of government involvement in Latin American banking sectors.