In recent months, the election of Donald Trump has been—and continues to be—the clearly dominant factor that prevails over North American banking. More than any one particular issue, it’s Trump’s promise to roll back much of the regulation enacted following the 2007-09 financial crisis that has caused banking stocks to post substantial gains. In addition to the “Trump trade”, US banking stocks have also rallied since the Federal Reserve raised interest rates in December and strongly suggested it would do so a further three times during 2017, thus raising hopes of stronger net-interest margins lying ahead.
As such, US banks rounded off a generally strong 2016 with positive fourth-quarter earnings. The country’s biggest bank by assets, JPMorgan Chase, posted record profits. Annual net profits climbed by 1.2 percent during the year to hit $27.7 billion, mainly on the back of a solid US economic climate and strong brokerage activity. Total loans, meanwhile, were up by 7 percent from 2015 levels, coming in at $894.8 billion. Wells Fargo, which suffered a significant setback after it was revealed that the lender opened two million accounts without informing customers, also appears to now be over the worst of the debacle.
As Trump continues to pose an ever-greater threat to US-Mexico relations, US banks have also been slashing their exposure to the country. Nevertheless, Mexican banks posted stellar results for 2016. According to banking regulator CNBV (Comisión Nacional Bancaria y de Valores), they managed to generate aggregate net income of 107 billion pesos ($5.26 billion) last year—8.3 percent higher than the previous year—with the largest seven banks, BBVA Bancomer, Santander, Citibanamex, Banorte, HSBC, Scotiabank and Inbursa, contributing 88 billion pesos of this total. Total assets for the sector grew 11.6 percent to 8.59 billion pesos. Loan growth and higher interest rates are among the chief underlying factors for the positive results.
Canada’s banking sector also enjoyed spectacular growth in 2016, in spite of a slowing economy, low interest rates and relatively modest commodity prices. Four of the country’s biggest banks posted strong earnings for last year’s final quarter, with Canadian Imperial Bank of Commerce (CIBC) posting net-income growth of 20 percent and Toronto-Dominion Bank (TD Bank) 25 percent. Scotiabank, meanwhile, experienced a 9-percent rise in profits, although RBC Royal Bank saw a marginal decline over the year.
Costa Rica’s fiscal deficit has become a growing concern for credit-ratings agencies, and, as such, the country’s biggest state-owned banks have recently experienced downgrades. In mid-February, Moody’s lowered the long-term local-currency deposit and foreign-currency senior unsecured-debt ratings of two of its biggest lenders, Banco Nacional de Costa Rica and Banco de Costa Rica, to negative outlooks.
Over recent years, most of South America’s biggest economies have experienced sharply contrasting fortunes. In turn, the respective performances of the banking sectors within the region today are incredibly varied, and range from spectacular to deeply troubling.
Brazil has suffered a torrid couple of years, with record falls in gross-domestic-product (GDP) figures. The contraction has had a marked effect on Brazilian banking, and in particular on loan portfolios that continue to reflect higher borrower default rates. The country’s largest privately owned bank, Itaú Unibanco, announced that its net income was down by 7.4 percent in 2016. Generally, however, Brazil’s banking stocks have posted considerable gains thus far in 2017. This has mainly been down to the country’s central bank, Banco Central do Brasil, cutting interest rates by 75 basis points to 13 percent, which was more than analysts’ predictions of a 50-basis point cut.
Under its new market-oriented government, Argentina continues to take giant strides towards returning to the international fold, with banks playing a crucial role in the country’s recovery. For instance, since President Mauricio Macri introduced a tax-amnesty deal to encourage those Argentines holding an estimated total of $500 billion in offshore assets to declare their funds, banks have been instrumental in facilitating their recovery.
Late last year, credit-ratings agency Fitch published a peer review of large Chilean banks—Banco Santander-Chile, Banco de Chile, Banco del Estado de Chile and Banco de Crédito e Inversiones—that account for 64.9 percent of total loans of the country’s entire banking sector. The review was largely positive, noting that the banks have exhibited remarkable resilience in the face of slowing economic growth, with GDP growing at an average of just 2 percent per year between 2014 and 2016. According to Fitch, Chile’s biggest lenders “exhibit a solid risk management framework based on local regulatory standards and robust corporate governance practices, adequate provisioning and controlled impairment levels”, whilst also possessing strong levels of liquidity.
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Robert Sarver
Western Alliance Bancorporation (United States)
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BAC San José (Costa Rica)
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Walter Bayly
Banco de Crédito del Perú
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Banco Security (Chile)
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Itaú Unibanco