Subsidiaries of European banks well insulated from crisis - Fitch

Wednesday, October 26, 2011

Fitch sees little risk that a potential Eurozone funding crisis will spill over into Latin America's banking system, according to a report by the ratings agency.

Latin American subsidiaries of large European banks - such as Santander, BBVA and HSBC - make up between 10% and 20% of assets in the local banking systems of the countries where they operate. But funding relationships with parent institutions show none of the interdependence that may expose other emerging markets' banking systems to significant contagion risk, the report said.

In cases such as Mexico - where European banks' units account for a 45% market share - and Chile - where Santander and other European banks make up some 30% of total bank assets - the subsidiaries benefit from self-funding and minimal dependence on their parents.

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Subsidiary banks in Latin America are largely funded through local deposits, with little or no direct exposure to short-term parent funding.

The agency said the banks most directly exposed to Europe's sovereign debt crisis are in France and Italy, but these are generally small players in Latin America.

Financial crises over the past 30 years have taught central banks to take insulating measures, which are now having positive effects, providing broad support for national financial systems in case of a funding crisis, according to Fitch.

Fitch notes that smaller and weaker banks are more directly exposed to risks than their larger, market-leading competitors.