Wednesday, June 29, 2011

Brazil Credit Growth Is ‘Not Sustainable,’ HSBC Says

Brazilian credit is growing at an unsustainable rate and will slow when the central bank begins to raise rates at next week’s meeting, said Emilson Alonso, chief of Latin America for HSBC Holdings Plc.

HSBC expects the central bank to raise the benchmark lending rate by 3.5 percentage points this year to 12.25 percent, Alonso said. Brazil’s credit as a percentage of the economy rose to 41 percent last year from 23 percent in 2004, he said.

“Brazil is booming and it’s not sustainable,” Alonso said in an interview in Acapulco during a bankers convention today. “Inflation is showing signs of some increase.”

Brazil’s banking assets had been growing at 20 percent to 25 percent a year and may decelerate to 10 percent to 12 percent growth, Alonso said. HSBC has about 5 percent of Brazil’s banking market share and doesn’t see that changing.

“I think the government is going to start to curb a little bit this fever that is in Brazil,” he said.

Mexico is the market now with the best growth potential, Alonso said. Credit as a percentage of the economy may double over the next five years to 40 percent as the economy returns to growth.

“We have capital and liquidity. We are willing to lend,” Alonso said of the Mexican banking industry. “You get the real economy growing and then the banks will follow.”

Gaining Market Share

HSBC expects to gain market share in Mexico on its credit assets, perhaps rising to 15 percent from 10 percent now, he said. The Mexican economy last year fell 6.5 percent and may increase 3.8 percent, according to economists surveyed by Bloomberg.

The bank plans to increase correspondent banks in Mexico, which are small businesses that agree to offer banking services, to about 5,000 or 6,000 over the next two years from about 1,500 to tap into credit demand.

HSBC will likely focus more on growing its existing banking business in Latin America because prices for acquisitions are too high, Alonso said. Banks in Latin America can cost in the range of 2.3 to 2.6 times market capitalization without counting a premium for control, which makes it difficult to reach HSBC’s goal of 15 percent to 19 percent return on capital, he said.

“We’ve been tracking this everywhere, but so far the price of assets are high,” Alonso said. “Unless we have a good fit at the right price and a good opportunity, I think we’ll continue pushing organic growth.”

Panama is another market where HSBC will concentrate growth. The country’s financial system is a hub from which to service economies in Central America, he said.

“It’s a tremendous center for logistics. They are trying to attract financial companies there,” he said. “There’s an opportunity to grab this growth there.”

HSBC may seek a banking license for Guatemala, he said. The bank serves the Central American country with a representative office.