Why some Latin American banks outperform the rest of the world

22 July 2019 Consultancy.lat 3 min. read
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The fastest growing banks in Latin America are among the fastest growing in the world. The success of these banks comes down to Best-in-class customer-centric segmentation and segment value proposition, pricing excellence and superior intenral operations, including risk management. 

McKinsey & Company reports that the banking sector in Latin America has outshone those in most parts of the world over recent years. Banking in many countries has maintained a degree of stability despite disruptions from the digital and regulatory front, although growth across the board has been limited.

In Latin America, revenues in the banking sector have grown at a compound annual growth rate (CAGR) of 12% between 2012 and 2017, taking the overall value to a staggering $418 billion. Not only does this exceed growth achieved in all other regions across the globe, but it is 6% higher than the global average.

Banking revenue before risk costs

One explanation for these towering figures, according to McKinsey & Company, is the starting point for banks in Latin America, which is a degree behind that in other regions when it comes to market penetration. Less than 50% of people over the age of 15 have bank accounts in a number of Latin American countries.

In countries such as the US, the UK and Spain, penetration is at 90%, leaving little room for any remarkable growth. In this context, the researchers expect Latin America to stay atop the list of fastest growing banking sectors, and predicts the average annual growth rate to be 10% over the next half decade.

Nevertheless, the room for growth is not an assurance for growth, and a number of banks in the region have executed adept strategies to ensure that they continue to expand and rise in popularity. McKinsey studied some of the leading banks in the region to determine what practices were contributing to their success.

Latin American banking revenue before risk costs

One “winning practice” that emerged from the firm’s analysis was the strategic pricing practiced by a number of banks. Quoting McKinsey’s report, “Most winning banks possess a distinctive ability to detect and capture pricing opportunities, and to prevent fee leakage; some leverage advance analytics techniques to do so at a granular level.”

The rolling out of commercial excellence programmes is another factor that has had a significant contribution to success. Relationship Managers (RMs) in the region have been trained to recognise opportunities for commercial growth, and have therefore become substantially more productive in recent years.

Meanwhile, leading banks in Latin America have also grown skilled in identifying significant risks, which has led them to engulf a major share of customers in the region that have secure credit. McKinsey has described these banks’ risk assessment capabilities as “better than average,” lending a degree of security to their expansion.

McKinsey finds that banking institutions in the country also operate based on strategic segmentation of their customer base. “Most winning banks focus on segments and develop tailored value propositions across five dimensions: products, services, relationship model, distribution model, and channels.”