Regional Banking in Latin America
Call date: 19th November 2020
In this call, members discussed the challenges of regional banking in Spanish speaking Latin America The discussion covered their experiences with different banks, including: BBVA, Citi, HSBC, JP Morgan and Santander as well as local in country banks.
This was a call with a relatively small group which allowed for quite a detailed discussion.
The conversation was limited to Spanish-speaking countries, as we covered Brazil in a separate session. This still allowed for a substantial variation: participants agreed that the cultures and regulations vary considerably from one country to another. At one extreme, Mexico and Chile perform as relatively successful modern economies, in which most corporate treasury processes can be executed. At the other extreme are Venezuela and, to a lesser extent, Argentina, where many companies’ operations are on hold. In between, countries like Colombia and Peru can be difficult but have still progressed significantly over the past twenty years or so, while Central America can be quite challenging.
Overall, though, the region has stabilised significantly: most countries have relatively well established democracies: outgoing presidents accept the results of elections and transfer power peacefully….
Against this background, most international banks have reduced their presence, particularly in the retail segment. This causes problems for collections and payroll – the partnership agreements which have been put in place with local banks frequently fail to provide the same level of service. Relationship managers often struggle to exercise significant influence across all countries, and the service is not as good as in other regions.
Amongst the foreign banks, Citi is the most used, and the one with the most consistent presence – though their service is also inconsistent and they have withdrawn from the consumer segment. No single bank is aggressively expanding: BBVA received the most mentions after Citi, with Santander and JPMorgan also being mentioned. There was a general consensus that few local banks met the participants’ requirements, though they have been known to aggressively press the local management for business. Several local banks are present in more than one country – but they have no cross-border alignment.
Most treasurers have struggled with payroll, especially obtaining a single debit to the main bank account, to maintain confidentiality. Solutions adopted include outsourcing to a provider who settles the salaries and is paid by the company (creates counterparty risk) or opening separate accounts for payroll.
Cash management is complicated by difficult tax regulations in some countries, and, in many cases, there are restrictions on cross border payments. FXall works well, and most participants reported few issues with MT940 reporting.
Bottom line: Latin America is a big and diverse region, with economies in varying states of development and openness. Like everything in the region, banking operations work – but they require effort.