This report is being written at a time when the global financial crisis - which arose as a result of theevaporation of inter-bank liquidity - appeared to be moving towards a resolution. The governments of theUK, the US and most of the larger countries in the eurozone have all announced plans to make fundsavailable - in one form or another - to their respective commercial banking sectors. As yet, it is too earlyto identify the impact of the crisis on particular emerging markets. However, in the regular section whichdiscusses the changes which we are making to the report, we include a lengthy analysis which attempts toidentify the key issues. In essence, in the emerging markets (and, indeed, the developed countries) of AsiaPacific, commercial banks and insurers appear to be well placed to deal with the crisis. The same isbroadly true of commercial banks and insurers in the various countries of the Middle East and NorthAfrica. In Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina,Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that ofBrazil; by contrast, Nigeria faces some of the same challenges as those that confront Venezuela. Thepositions of most countries in Central and Eastern Europe, however, are alarming.
It has not been practicable for us to collate the latest figures for assets and premium income this quarter.The global financial situation has been changing so rapidly that most numbers would have becomeinstantly out of date. Nevertheless, we expect that in the coming months it will become obvious that creditgrowth is slowing dramatically in most of the countries whose commercial banking sectors are profiled inBMI’s reports. We will amend the figures - and indeed our forecasts - accordingly.
The tables above provide a snapshot of the changes in the banking sector in Argentina over the last yearand to place the figures in context, it may be useful to bear in mind certain aspects of the 59 countrieswhose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets inlocal currency terms was 21.3% (in Colombia). The median loan growth was 21.6% (in India). Themedian growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets, and GDP mean little. However, they can provideuseful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was63.9% in India.
From this quarter, we have included a section that examines the risks associated with each country’sbanking sector in a new way. We have essentially sought to ask this question - to what extent will it belikely that the banking sector needs to source funding from banks in the rest of the world over the courseof 2008? Given that the answer is not necessarily, on its own, meaningful, we have looked at other keyissues such as the size and recent movement in the loan/deposit ratio, macro-economic developments andrecent movements in financial markets.
Over the last year, Latin America has been a major beneficiary of the pick up in investors’ appetites forrisk. Yields on bonds have been falling, and the compression of yield spreads has been larger than in otherparts of the world. In every one of the Latin American countries monitored by BMI, the loan/depositratios have been rising. Current accounts and budgets are, for the most part, balanced. Collectively, thebanks are sourcing funds from the rest of the world in order to lend to non-bank customers.
As in previous reports, we include a SWOT analysis for Argentina. There are points of strength - such asstrong growth and, in very broad terms, a germane macro-economic environment. However, overall,Argentina is unusual in that the banking system does not really come between savers/depositors andborrowers in the way that it did prior to 2001 and in the way that banking systems do in almost all othercountries. In financial terms, the banks have recovered from the crisis of six years ago. They have not,however, regained depositors’ trust. Nor are they themselves confident to lend.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating(CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits ofpotential returns. It does this by taking into account the size, growth potential and bank assurancepotential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends onan assessment of the risks to the realisation of potential returns. This reflects BMI’s assessments ofoverall country risk, together with the regulatory and competitive environment.
Argentina’s overall CBBER is 53.1. Within the limits to potential return, the market elements and thecountry elements are fairly evenly weighted - with scores of 51.9 and 47.2, respectively. Within the risksto the realisation of potential returns, the market elements and the country elements are also evenlyweighted - with respective scores of 60.0 and 60.3.
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