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Banking: room for consolidation

Wednesday, March 6, 2013

An article by the London-based magazine The Banker, a sister publication of the Financial Times, points to the latest trends in banking in Central America.

The article's title -- "Top 100 Central American banks" -- indicates at least one of the trends.

If a region of barely 40 million people has 100 banks, there appears to be room for consolidation of the sector, particularly since a large proportion of the 40 million are too poor, to use many banking services.

Colombian banks have done their share to increase consolidation.

Banco de Bogotá is to be found in all but one of Central America's markets, while Banco Davidienda's subsidiaries are in four.

In terms of ownership, banking markets in Central America are varied.

Eight of El Salvador's 11 banks are foreign-owned. In Panama the proportion is more or less 50-50. Meanwhile, Guatemala's sector includes only three foreign-owned banks of a total of ten Foreign-owned banks tend to be more profitable than local ones. In Panama, for example, foreign institutions account for 60 percent of all the banks' profits.

But the opposite is true in Costa Rica, where state-owned banks account for three-quarters of sector profits.

It comes as no surprise that the rankings are dominated by Panama, which leads in core, with $8.1 billion, followed by Costa Rica with $2.7 billion.

Panamanian banks were in addition the leaders in all individual categories. But banks in Nicaragua, the region's poorest country, will have surprised many by reaching close to the top spots in the rankings on capital and return on assets.