Consolidation, which has been most active in the three largest Latin economies, has helped reduce systemic risk because of massive capitalization and improvement in asset quality.
Brazilian banking has experienced a fast growth of foreign participation over the past five years. Today, foreign institutions control about 24% of total assets - 45% if public banks are excluded - against 8% in 1996.
Despite advances by global players, however, the large domestic Brazilian banks still command strong market shares in virtually all business areas of the financial market. Their size and broad business scope allow for diversified loan portfolios and broad revenue bases. Critical mass in terms of clients and sales points makes cross-selling successful. But heightened competition in Brazil, and the need for future capital to support long-term growth and to defend market position, may compel the largest domestic banks to enter into partnerships or associations.
In Mexico, the enhancement of credit and financial strength has been triggered by the sale of the largest franchises to international groups, in a fast consolidation process. As a result, foreign banks now control some 80% of the system's assets. This is a significant departure in Mexico, where only three years ago there was a rule on the books - the so-called 6% rule - that prohibited foreign entities from controlling more than 6% of the system's capital.