Latin America's economies may be just getting off the ground, but its banks are already well ahead of the game.

Starved by more than a decade of credit shortages, banks are catering to a surge in loan demand from corporations, consumers, and investors as financial market reform gathers steam.

"You have the economies opening, you have deficits being controlled, and you have inflation coming down," notes Stefano Natella, a Latin America analyst with CS First Boston in New York.

"With inflation coming down, this has triggered a boom in lending, especially consumer lending."

Dramatic Change Predicted

Bankers and analysts say market reform in Latin America and the privatization of formerly state-controlled economies and corporations are radically altering the kind of business banks do and vastly increasing the scope of the services they provide.

"The banking sector in Mexico will change dramatically," predicts Manuel Somoza Alonso, chief executive officer at Banco Mexicano SA.

"What you have is a total change in lending patterns in banks, away from big corporate and state-run sectors in favor of the retail sector," says Mr. Natella.

That, he says, means that although banks stand to profit from higher margins, they also risk running into more nonperforming loans.

This trend is most pronounced in Mexico, where bank lending has skyrocketed in recent years as problem loans have increased.

"Loans have grown dramatically since 1989, reflecting the improving economic environment and improved availability of credit," Duff & Phelps Rating Co. notes in a recent assessment of Mexico.

"As the economy has slowed, the industry has experienced a sizable increase in problem loans."

Still, compared with many other areas of the world, the level of nonperforming loans remains low in Latin America and bankers and analysts remain sanguine.

|Not a Widespread Problem'

"Nonperforming loans are not a widespread problem through the industry," adds Mr. Natella.

According to calculations by First Boston, provisions for possible loan losses among banks in Mexico ate up 5.28% of gross interest income during the first quarter this year.

In the United States, where banks are benefiting from steadily improving earnings, Mr. Natella points out that provisions against bad loans accounted for nearly 10% of gross interest income.

Not |Over Their Heads'

"Growth appears strong, but when you relate it to individual people, they're not indebted way over their heads," says Constantin Boden, executive vice president at Bank of Boston Corp. and head of the bank's international operations.

Per-capita retail debt in countries like Argentina where lending is growing by leaps and bounds is still well below levels acceptable elsewhere, Mr. Boden adds.

The Boston-based bank, which has a large network of offices in Argentina, Brazil, and Chile, sharply increased its local lending in Latin America last year and plans to increase it even more in 1993.

Some Lag Behind

Profits also remain strong.

Mexico's 18 commercial banks, for example, had a combined return on assets of 1.56% for the first quarter and a 25.7% return on equity - both figures well above international norms.

Still, not all countries are moving at equal speed.

Mexico, Argentina, and Chile are among the countries where the biggest market reforms have been implemented and banking has grown fastest.

Colombia and Peru are slowly but steadily deregulating banking, while countries like Brazil and Ecuador are still mired in regulatory constraints.

Nonetheless, bankers believe it's only a matter of time before the laggards start catching up.

Both Peru and Colombia, they point out, are following in the wake of Mexico, Argentina, and Chile by privatizing state-owned banks and setting up genuine local capital markets.

"Colombia will be the next," Mr. Natella predicts.

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