Latin American banks began a recovery this year that promises to gather pace in 2018. The expected acceleration in GDP growth in several countries in the region, levels of coverage and portfolio quality that remain at acceptable levels, and high solvency rates and ample liquidity bode well for a Latin American financial system that has lost some of the brightness of 2014-2016.

After a contraction of 0.9% last year, regional GDP could end 2017 with growth of 1.2%, according to estimates by the International Monetary Fund (IMF). The IMF sees growth of 1.9% in 2018.

For the Economic Commission for Latin America and the Caribbean (ECLAC), the expansion in 2018 will be higher: 2.2%. This better outlook is already driving greater dynamism in loans. According to a study by the Latin American Federation of Banks (Felaban), the regional loan portfolio grew in June at an annual rate of 1.48%, leaving behind the contraction of 1.06% and 14% recorded in the same month of 2016 and 2015, respectively.

Argentina, Bolivia, Costa Rica, Colombia, Ecuador, the Dominican Republic and Honduras are the countries where loans show highest growth. Expectations are that Brazil, Peru, Chile and Colombia will join the list in 2018 as a result of an economic upturn.

Despite the slowdown in the volume of loans, the regional banking system has managed to maintain good levels of profitability in recent years. In June, the Return on Assets (ROA) of regional banks was 1.37% and the Return on Net Equity (ROE),13.49%. This is a drop compared to two years ago, but if the comparison is made with June 2016, we see increases in profitability in Brazil, Chile, Bolivia, Mexico, Ecuador, Panama, Paraguay and Uruguay.

One of the main reasons for sustained profitability is that, even with economic weakness and the increase in unemployment registered in several countries recently, the indicator of the overdue portfolio at the regional level has remained low. Last June it was 2.36% of the total portfolio.

The consenus is one of growth in loans and profitability for the banking sector in 2018, although presidential elections in Chile, Brazil, Mexico, Colombia and Paraguay, as well as negotiations underway for NAFTA and interest rate changes by the Federal Reserve of the United States, are elements that will affect banking next year.

In this report we offer an overview of the Latin American banking industry in 2018, which includes the main trends in the region, as well as a more in-depth analysis of the six largest markets: Mexico, Brazil, Argentina, Chile, Colombia and Peru.


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