The wisdom of spending $10 billion buying Latin America banks has not always been crystal clear to analysts but the results are starting to come through. In the first quarter, BSCH's Latin American banks earned nearly $200 million, 69% up on the first quarter of 1999, and roughly 40% of the total. By contrast Spanish retail banking managed a meagre 4% increase in profits.
On a medium-term basis Latin America is expected to contribute closer to 30% of the total and part of the logic of merging with BCH is to reduce the proportion of these earnings. As Santander discovered in 1998, Latin volatility can have a considerable impact on the parent company's share price.
Right now, however, the bank is benefiting from a benign outcome: growth prospects in most Latin countries have improved and BSCH has had several years to put its purchases in order. This has involved considerable writing oV of bad loans and provisioning, modernizing of systems, staV cuts and only limited lending. Up to now BSCH has followed the tried and tested philosophy of leading Latin banks such as Brazil's Itaú in not advancing too much credit but in putting government paper on the asset side of the balance sheet.