Latin banks face lending slowdown in global crunch

SAO PAULO (Reuters) - Latin American banks, already bruised from the slump in financial stocks this year, will see a sharp slowdown in lending growth because of the liquidity crunch gripping global markets.

Unlike several banks in Europe, Asia and the United States, Latin American firms have little or no exposure to Lehman Brothers Holdings Inc (LEHMQ.PK) or subprime credit.

Latin American banks have dealt with hyperinflation, political volatility and currency devaluations throughout the 1980s and 1990s, making them more cautious than their U.S. counterparts. Banking crises in the region also forced governments to implement stricter regulations.

Still, the liquidity squeeze in global markets has already pushed up borrowing costs and drastically reduced available credit in the region, threatening a slowdown in once buoyant economies from Brazil to Mexico.

Trade finance has all but vanished in Brazil and is taking a hit in Chile, while in Venezuela the government has ordered banks to set up a fund to cover possible losses from holdings of Merrill Lynch MER.N and Lehman assets.

In Argentina banks have seen a slowdown in lending and deposits and in Mexico nonperforming loans have crept up.

Bradesco (BBDC4.SA) (BBD.N), Brazil's largest private-sector bank, shortened the terms for automobile loans to 48-60 months from as long as 72 months before, while personal loans backed by workers' salaries extend to just 60 months now, from 84 months.

The bank has also become more selective in lending to consumers and large corporations alike.

"REDOUBLE ATTENTION"

"In a situation like this, we redouble our attention with some clients, some sectors because of the decline in trade finance lines," said Norberto Pinto Barbedo, Bradesco's executive vice president for medium and large companies.

Bank lending in Brazil surged 31.8 percent in August from a year earlier, but the central bank forecasts that it will slow sharply in the coming months and end 2008 with growth of between 22.5 percent and 25 percent. For 2009, lending should grow 19 percent, according to the Brazilian Banks Federation.

"Brazilian banks have always dealt with a lot of volatility and have always shown good results, even in the most difficult of times," said Milena Zaniboni, an analyst at Standard & Poor's in Sao Paulo.

Lending to consumers and businesses in Mexico, which expanded at an explosive rate of 50 percent a year in 2005 and 2006, grew 24 percent in 2007 and only 11 percent in August from the year-earlier period as banks became more cautious.

Corporate lending growth in Mexico should offset a decline in consumer credit as nonperforming loans have increased. Still, even credit to companies is in danger of losing steam if the United States falls into a deeper economic rut.

"The problem of past-due loans in Mexico has been strictly in the area of consumer lending, concentrated in credit cards. But if the global economic situation continues to deteriorate ... undoubtedly that could affect Mexico's productive sector," said Alejandro Garcia, an analyst at Fitch Ratings.

Concern that a slump in lending would jeopardize economic growth prompted Brazil's Finance Minister Guido Mantega to promise credit lines through state-owned banks. In Mexico, the finance ministry urged banks to keep credit flowing to infrastructure projects and housing despite the U.S. meltdown.

TOXIC LOANS

Banks in some Latin American countries may be better insulated than others from the financial turmoil, analysts said. Colombia's banking sector only has about $6.9 billion of its $92 billion in assets invested overseas, according to the country's financial superintendency.

About $70 million was deposited by Colombian banks in Lehman Brothers, the large U.S. investment bank that succumbed to the crisis. But Colombian banking rules prohibit local institutions from investing directly in U.S. mortgage securities, which were at the heart of the credit crisis.

"No bank monitored by the superintendency has direct exposure to the toxic loans that have caused this international problem," said superintendency head Cesar Prado.

The situation is similar in Argentina, where capital controls make it harder for banks to invest in foreign assets.

"Argentina's financial system has reduced channels for contagion (from the U.S. financial crisis)," said Francisco Prack, chief economist at Grupo SBS, a financial consulting firm and brokerage in Buenos Aires.

"Argentine banks basically have Argentine assets. It's very unusual for them to be exposed to other countries, at least in any significant way," he said.

(Additional reporting by Hilary Burke in Buenos Aires, Noel Randewich in Mexico City, Nelson Bocanegra in Bogota, Ana Martinez in Caracas and Lisa Yulkowski in Santiago; Editing by Brian Moss and Todd Benson)