As the 50th annual assembly of the Latin American Banking Federation (Felaban) draws to a close in Buenos Aires, GTR sums up the main topics that got people talking.
After almost two years of regional recession, speakers were confident about growth prospects for Latin America. Brazil and Argentina are both implementing pro-business reforms that have already started to show signs of encouraging investment; commodity prices are on an upward trajectory after years of slump; and China’s slowdown – a great cause for concern in a region so dependent on Chinese trade and investment – hasn’t been as bad as initially imagined.
“The message is of recovery globally and in Latin America, but slow, gradual and subject to significant risks including Brexit and other risks in Europe, systemic risk in China, and the US election,” said Juan Manuel Ruiz, LatAm economist at BBVA.
Regional central banks’ efforts to support growth and limit inflation during the crisis were hailed, and most experts now expect a prolonged period of monetary policy easing, with decreasing interest rates that should boost lending.
Yet speakers pointed to the need to increase intra-regional trade (currently around 4% of all LatAm trade flows) in order to ensure the region’s future prosperity. “For all the talk about Latin America trade integration, we haven’t made many inroads except in Mexico, which has become integrated with the US. The Pacific Alliance is one of the trademarks of the region,” added Ruiz.
A new era for Argentina
Argentina’s finance minister, Alfonso Prat-Gay, gave one of the most inspiring speeches of the conference, laying out the progress achieved by the country in the past year and the remaining challenges it needs to tackle.
“The most important default for Argentina was its default on truth. The norm of our previous government was to avoid the truth, and there was a practice of lying systematically about the budget,” he said.
Prat-Gay pointed out that renegotiating Argentina’s sovereign debt was crucial to redress its economy. “We have a society that wants to normalise its situation and lower the deficit and inflation little by little. Without access to capital markets, we wouldn’t be able to do this. We’ve never had a sovereign debt level that allowed the banks to lend long term – this is about to change.”
He hailed the recent surge in investments in the country, which jumped by US$10bn in a month, and the fact that local banks are starting to obtain credit lines, “which reflects the industry’s optimism about this new stage”.
Among other reforms, the Sinceramiento Fiscal, which allows citizens to declare and pay taxes through special accounts within banks, could help the financial sector grow by up to 10% in its first phase (finishing on November 21), according to the minister.
Prat-Gay also mentioned the example Argentina could become for developed countries that are showing growing signs of populist sentiment, such as the US, and Western European nations. “In Argentina, we know populism doesn’t work,” he said.
Sustainable financing was the topic of one of the most well-attended sessions of the conference. Participants agreed that the world is witnessing a moment of incredible change in the banking sector, with technology and sustainability regulations forcing banks to shift their modus operandi.
“The financial sector is very sensitive to change in policy,” explained Elliot Harris, assistant secretary general and head of the New York office of the United Nations Environment Programme (UNEP). “If governments provide a predictable framework, the business opportunities become clear. We have observed so much change towards sustainability that we are talking about a quiet revolution, and this change is being driven by emerging economies.”
Opportunities for green financing in Latin America are growing, with, for example, Argentina pledging to source 20% (from 2% currently) of its energy needs from renewables by 2025.
Maria Eugenia Sosa Taborda, sustainability manager at Itau Unibanco, added: “Infrastructure and the renewal of old equipment can also be classified as green economy. For example, 14% of all financing taking place in Brazil is going towards what could be considered green projects. We’ve also established that R$1tn of green bonds could be issued in the medium term in Brazil. Having the green label on these bonds will raise awareness and help educate the market.”
As seems to be the case in most banking conferences these days, financial technology was an important topic at the Felaban assembly. Oliver Cunningham, head of transformation, global banking team leader at KPMG, pointed to the 138% growth in mobile banking in Brazil in the past year as proof of the fintech opportunity in Latin America.
“We’re are now all technology companies. Uber is a technology company that happens to do car services; Amazon is a technology company that happens to offer online shopping; banks are technology companies that happen to offer banking services. The minute we realise that, that begins to shape our capex and thinking,” he said.
Guillermo Kopp, worldwide director of the financial services industry at Microsoft, stressed the particular opportunity presented by Brazil. “Currently there are around 200 fintechs in Brazil, but only three or four have real value. But this is about to change, because London fintechs are eyeing Brazil.”