Banks’ spreads on trade finance in Latin America have narrowed as U.S., Canadian and Asian lenders expand amid a withdrawal by European competitors.
“We have now in Latin America an oversupply of trade-related lines” of credit, said Ricardo Gelbaum, director of investor relations at Banco Daycoval SA, the Brazilian bank specializing in loans to small- and mid-size companies. “And this is happening even with most of the European banks out of the market,” he said in an interview in Lima.
European banks are selling assets amid a squeeze in dollar funding and to meet stricter capital requirements mandated by the Basel Committee on Banking Supervision. Concern that Europe’s debt crisis would harm banks’ creditworthiness has limited their ability to generate financing denominated in dollars as U.S. and other international financial firms curtailed lending in the region.
“Banks from Japan and China are becoming very aggressive in the offers they make, joining the Americans and Canadians and compensating completely for the lack of lines from most of the European banks,” said Waldir F. de Oliveira, trade finance general manager at Sao Paulo-based Daycoval. “We were invited to a lot of meetings from international banks here,” he said, referring to the annual meeting in Lima today of Felaban, the banking federation for Latin America.
Reduced demand for credit amid Brazil’s economic slowdown helped cut the spread paid over Libor, the London interbank offered rate, about 50 basis points in one year for trade-related lines due up to 360 days, said Jair Beserra da Silva, Daycoval’s trade-finance manager.
Daycoval has a total portfolio of $350 million in trade-related credit even though it could extend about $600 million because of credit lines offered by other banks, according to da Silva.
“The companies that we want to lend to don’t need credit, and the ones that are seeking lines we don’t want to lend to,” said Gelbaum, adding that the banks are being cautious because of high delinquency rates. At Daycoval, loans at least 90 days overdue increased to 1.7 percent of the total portfolio at the end of the third quarter from 0.7 percent a year earlier.
“The companies in Latin America with better credit risks now have a lot of credit alternatives that are sometimes more attractive than trade-related loans,” said Ernesto Meyer, head of syndicated loans in Latin America for Paris-based BNP Paribas SA. “We are seeing a lot of local currency loans in most of Latin America’s countries with a huge participation by local banks in club deals,” he said, referring to loans offered by a small group of banks.
Local-currency loans are usually better suited for project finance because the cash generated is typically in local currency, he said.
“Local banks are also growing bigger in trade-related loans in dollars, a space dominated by international banks in the past,” Meyer said. “There is a pricing convergence taking place between local banks and several international banks outside the U.S. and Japan.”