The Foreign Conquest of Latin American Banking: What's Happening and Why?

Type:
SCID Working Paper 171

Author(s):

Published:
07/1/03

Region:
Latin America

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Abstract:
International banks aggressively expanded into Latin America during the 1990s as democracies replaced authoritarian regimes and economic growth accelerated throughout the region. Foreign banks now control 45 percent of Latin America’s banking assets. Mexico has the highest foreign ownership share at 84 percent, with only one big domestic bank left to be acquired. The two biggest banks in Spain have led the “conquest” of Latin American banking, accounting for slightly more than half of all foreign banks’ assets.

This paper documents the dramatic changes in the banking markets of the major Latin American countries brought about by the foreign penetration. It discusses the reasons for the greater presence of foreign banks and the impact of these banks on the allocation of credit. This is not only important but also timely given the current economic and political turmoil in the region. This situation has created growing concern about increased foreign ownerships in local economies. Only through a better understanding of the role that foreign banks play in Latin America can one appropriately assess whether they benefit or harm local economic growth and development.