Increased cross-border trade and greater economic interdependence throughout Latin American means banks will continue seeking expansion opportunities throughout the region, but they will be more selective as easy financing comes to an end and potential targets become scarce, according to a report from Moody’s.
Future consolidation will also depend on cross-border activity between Latin America, Asia and Europe, said the credit ratings agency (CRA)
“Chinese banks looking to finance natural resource projects in Latin America are the main driver behind interest from Asian banks,” state the report’s authors. “On the other hand, some large Latin American banks are, or their shareholding groups, are exploring opportunities to invest in Europe.”
Mergers and acquisitions (M&A) in the region will also be characterised by carefully-selected transactions that provide opportunities for long-term growth, or provide a platform for the establishment of regional operations. Banks will also be looking for particularly attractive growth markets to offset troubles in their home markets, said Moody’s.
Favourable financing conditions in the form of abundant liquidity and strong local currencies and the divestment strategies of certain global banks in Latin America led to a flurry of M&A activity in the region between 2011 and 2013, with more than 45 domestic and cross-border deals in the financial sector.
Those extremely favorable conditions are coming to an end, however, as European banks such as HSBC, BBVA and Santander have finished offloading non-core assets in the region, and the US Federal Reserve’s recent start to the tapering of monetary stimulus makes access to financing more difficult.
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