An improvement in economic conditions in Latin America is promoting an ever-growing number of foreign and U.S. banks to set up Latin mutual investment funds and to resume lending to Latin countries, according to a Miami-based international consultant.
"My sense is that there is a significant increase in trade lines not only among banks in south Florida but in other parts of the country as well," said Manuel Lasaga, a partner with Strategic Information Analysis Inc.
"There is a renewed interest and renewed confidence in Latin America," he said.
The consultant noted that unlike the late 1970s and 1980s, when banks provided loans with maturities of two, five, or 10 years, banks are not restricting their lending mainly to short-term loans of six months or less.
A Wave of Defaults
Almost all Latin countries, including Brazil, Mexico, Venezuela, and Argentina, defaulted on billions of dollars in borrowings from U.S. and other foreign commercial banks in the 1980s.
The banks subsequently were forced to renegotiate their loans and write off a substantial portion of their lending.
Loans of U.S. banks to Latin America plummeted from a high of $86 billion in 1984 to $35.6 billion in 1991.
As U.S. banks abandoned lending to Latin America, much of the slack was picked up by foreign banks, especially foreign banks based in south Florida.
Rebound in 1992
Last year, however, lending climbed by 9% back to $38.8 billion, almost all of it in short-term trade-related loans.
"They've seen that they've had problems with term loans but that trade finance loans were never affected," Mr. Lasaga said.
Although most of the lending to Latin America was concentrated among the large money center banks, regional banks, including banks from the Midwest, are showing renewed interest in lending to Latin companies.
"Regional banks bailed out of international years ago but are again starting to see opportunities," he said.
Higher Yields Sought
And as retail and private banking customers continue to pull funds out of money market accounts and certificates of deposits because of the current low interest rates, many foreign banks, particularly in the Miami area, are planning to set up Latin investment funds that will offer higher yields.
"Depositors, especially private banking clients from Latin America, are willing to look at other options, such as currency, bond, and even equity funds," he said.
More Analysis Seen Needed
Mr. Lasaga noted that rising lending and investments were leading to increased demand for country-by-country risk analysis in Latin America.
"The renewed interest in Latin America has been accompanied by a greater need for country credit analysis," Mr. Lasaga said.
"I believe that banks have learned their lesson from the crisis of the '80s."
Warning on Risks
The consultant added that many investors were also unaware of how volatile Latin markets can be.
"I'm somewhat concerned that we have a wave of investments into Latin America through mutual funds handling small investors money," he said.
"Investors may not realize the returns may be fabulous, but any one of a number of factors could deal serious risk blow to any one of these funds."
Mr. Lasaga also said U.S. regulators were increasingly demanding country risk assessments in order to assess the creditworthiness of Latin loans banks are putting on their books again.
More Data Demanded
In response to the rising number of loans banks are putting on their books and tighter restrictions of foreign banks under the Foreign Bank Supervision Enhancement Act of 1991, regulators are also demanding more information on Latin American banking systems.
"(U.S.) Regulators have become more stringent and are a lot more interested in Latin banking systems and how they operate," he said.
Close Security Urged
StatInfo uses its own methodology based on economic, financial and political considerations to rank Latin countries for lending and investment purposes that includes a mix of quantitative as well as qualitative factors.
"We're very sensitive to intangibles, such as the quality of management, political issues, and consumer confidence in the government," Mr. Lasaga said.
For example, he noted, a particular Latin America government might officially have no control over exchange rates.
However, unofficially, it might have a long tradition of intervening in foreign-exchange markets.
This, the consultant said, is something that both banks and investors would need to be made aware of.
StatInfo ranks Chile, Mexico, Colombia, Venezuela, and Argentina as the best countries to lend to or invest in, in that order.
"There's risk, and there will be market corrections," Mr. Lasaga said.