After a tough start to the year, Latin American banks are slowly shedding the conservative strategies that kept them afloat during the global tightening cycle. With several economies back in swing, their growth prospects are improving, helped by digitalization and diversification.  

Latin American banks didn’t have an easy time this year. High inflation and interest rates, geopolitical turmoil and, in several countries in the region, political instability made running a bank as hard as biting nails. But they are pulling through now. Not only did the sector avert major collapses like in Switzerland and the United States, but some of the region’s banks are posting stronger-than-expected results and growing once again.  

That’s the case at BTG Pactual, a leading bank in Brazil. 

“In the second and third quarter, we started growing again in the credit market,” says Roberto Sallouti, its CEO. 

Regulation has helped in this quick turnaround from a decline at the start of the global tightening cycle in 2022. The region has a rigorous regulatory environment, a response to prior decades of having to deal with high inflation and banking crises. Regulators, too, have been proactive in tightening the screws to avoid any major problems. Indeed, Chile’s central bank told banks in May this year to set aside 0.5% of risk-weighted assets for a year as a countercyclical measure to tame the impact of financial turbulence. In Peru, new Basel III international adequacy rules for banks increased the capital ratio of the system to 16.4% in January of this year from 14.5% in December 2022, according to a Bank of Spain report. 

Another buffer for Latin American banks has been their low dependence on international funding. This helped stave off the effects of the Silicon Valley Bank and Signature Bank bankruptcies in the United States and the forced absorption of Credit Suisse by UBS earlier this year.  

Even so, there have been a few wounds. In Chile and Colombia, for example, banking profits have tumbled. A mix of lackluster economic growth and high inflation in both countries has swelled the risk of loan delinquencies and slowed credit growth, according to S&P Global Ratings. Although the ratio of nonperforming loans is still under control, higher provision requirements have cut into profits, while political and economic uncertainties are limiting investments. All this could dampen the performance of corporate accounts, long a major source of profits for banks in these countries, according to the ratings agency.  

Diego Masola has had to contend with this as CEO of Scotiabank Chile. 

“We have faced the impact of higher funding and credit costs and higher provisions, which has affected the whole banking sector,” he says. “We will post good profits his year, but not as good as in 2022.” 

With the economic troubles, Chilean and Colombian banks have been putting a priority on risk mitigation. Scotiabank Chile, for example, has been taking steps to keep down its NPL ratios in consumer finance, while moderating the acquisition of new customers, according to Masola.  

That’s the case in much of the region, where banks have held back expansion to manage their solvency situations over and beyond the demands by regulators, according to analysts. 


A few banks have fared well without relinquishing their conservative approaches, helped by the economic turnaround in their countries. Take BBVA México. In the first half of 2023, its financial results surged 33% from the previous half, says Álvaro Vaqueiro, head of corporate and investment banking at BBVA México.  

Mexico’s economy is outperforming all expectations in 2023 and the labor market is hot, boosting both wages and credit growth, he says. Consumer credit, for instance, has grown at a double-digit rate in Mexico, and companies are starting to deploy investment plans once again as the nearshoring trend is bringing more of the global supply chain into the country. 

Vaqueiro says BBVA México has been able to take advantage of this robust recovery in part thanks to its investments in digitalization. Technological tools helped make the bank’s internal processes more agile, allowing to offer smoother deals to clients and to keep loan delinquencies under control. BBVA México’s efficiency ratio has dropped to 32% in response, well below the market average. 

“Many of the tools we are introducing in our apps help clients to manage their debts and to avoid taking loans that surpass what they can pay,” Vaqueiro says. “We have also put a lot of focus on the market for SMEs and microbusinesses. These companies were previously seen as being riskier, but with the use of data and the analysis of clients’ behavior, we have many more predictive tools at hand to support this public.” 


Brazil’s economy has been surprisingly resilient in 2023 as well. The country’s capital markets showed signs of improvement in the second half of the year, BTG Pactual’s Sallouti says. Credit growth is still expected to close the year at a slower pace. In late September, the Brazilian central bank reduced its credit growth forecast to 7.3% from 7.7%, roughly half the performance in 2022. However, Brazil’s biggest banks posted solid results in the first half, and two of them – Banco do Brasil and Itaú Unibanco – did better than in the first half of 2022. 

What both of these banks and their main rivals have in common is a diversified business that extends beyond retail banking and into everything from investment banking to asset management and insurance.  

Alexsandro Broedel, CFO of Itaú Unibanco, believes this diversity of income streams helped the company increase its net profits by 14.2% in the first half of 2023 from the year-earlier period. A conservative risk management strategy has played an important part, too, and those factors should continue to drive the business as the economy improves, he says. 

“Working in a challenging macroeconomic scenario is part of life in Brazil,” Broedel says. 

Like many banks in the region, Itaú Unibanco has invested heavily in digitalization, a push that will continue along with its sustainability agenda. 

“We have defined an ambitious set of ESG measures, as the bank plays a fundamental role as an agent for change,” Broedel says. “We look at our own ESG footprint and at that of our clients in order to help companies to transform themselves. We also strive to provide incentives via our investment banking arm for companies to adopt good governance practices.” 

We look at our own ESG footprint and at that of our clients in order to help companies to transform themselves.  Alexsandro Broedel

Itaú is not alone. Domestic and international investment banks are stepping up the structuring and placement of ESG products by Latin American issuers. A flurry of green bonds, sustainability-linked bonds, blue bonds and even sports bonds have flooded the market. But in a period when capital markets have been listless, companies have become more reliant on bank credit, fueling a rise in sustainability-linked loans in countries like Brazil, Chile and Mexico. 

Florence Pourchet, head of CIB LATAM and CSR Americas at BNP Paribas, says the emergence of SLLs is largely a response to the decline in bond and equity deals. Once the global financial environment improves, more deals will hit the market with a clear sustainable element, and new structures and products will be offered by banks, she says. 

One example of this is the hybrid bonds issued by the likes of Chilean pulp and paper producer CMPC and Mexican cement maker Cemex this year, Pourchet says.  

By mixing the use of proceeds and key performance indicators, these hybrid bonds aim to address the concerns of investors with each of those kinds of securities, helping to broaden the sources of finance for issuers. As the demand of their clients evolve, this kind of innovation will be ever more important for Latin American banks to deliver. LF