Banking credit to both households and the private sector in Latin America has increased strongly, according to an International Monetary Fund working paper. It shows that credit to the private sector increased on average by 7% of GDP between 2004 and 2011, with real credit in some countries growing by up to 20% per year.
Growth in banking credit has been strongest for households and in most countries consumption and mortgage credit has grown faster than credit to the corporate sector. Within the latter sector credit has expanded the most within construction, the report says. Foreign owned banks posted the fastest lending growth, although domestic banks accounted for most of the growth in credit owing to larger market shares.
In a number of countries the period of strong credit growth since 2004 has opened a gap between the actual credit to GDP ratio and its long run trend. The gaps in general receded somewhat after 2007, but have in some countries picked up again after 2010. The report points out that this period of buoyant credit has been accompanied by strong deposit accumulation. During 2004 to 2011 the ratio of deposits to GDP has on average risen from 32.3 to 38.1% of GDP.
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‘This positive association reflects that banks’ capacity to lend is bolstered by a higher level of deposits, which constitutes an important funding variable for the Latin American banking sector. Indeed, on average deposits account for 77% of total banking funding in Latin America,’ the report explains. However, the credit expansion has not been homogenous across Latin America. Real credit growth has been particular rapid, an average of 15 to 20% per year in Venezuela, Paraguay and Brazil, while it has been more muted, less than 6% per year in Bolivia, Guatemala and Uruguay.
Credit to households has been more vibrant than corporate credit. Across the countries where data is available, mortgages, and consumption credit have grown faster than corporate credit from 2005 to 2011. This was the case in most countries, although Guatemala, Panama, Costa Rica and Mexico stand out with relatively high growth rates for corporate credit.
The report also says that mortgage credit has been especially dynamic in Brazil, where the average real growth rate for this segment was 31% over the period. Consumption credit has been buoyant in Argentina, where the average real growth rate was 22% over the period. However, in spite of the recent development, the stock of loans in Latin America remains dominated by corporate credit. In 2011 corporate loan shares stand above 50% in most countries.
Domestic banks have been the main drivers of the credit expansion but foreign owned banks increased their lending faster than domestically owned banks from 2004 to 2008. Nevertheless, the largest contribution to credit growth in this period in most countries came from domestic banks owing to large initial market shares. Lending from domestic banks also continued to grow after the global financial crisis intensified in 2008, while foreign banks curtailed their lending in 2009.
The report also says that national currency lending has increased. The stock of credit in domestic currency has increased substantially since 2004 in Peru, Bolivia and Uruguay. The same has happened to a lesser degree in Paraguay, Guatemala and Costa Rica. At the same time foreign currency lending has been less than 10% and roughly constant in Chile, Brazil, Mexico, Argentina, and Colombia.