The banking industry in Latin America—Brazil in particular—has much higher returns than in many developed markets. That provides both opportunity and risks, says Christopher Vost, a T. Rowe Price investment professional who covers that sector in the region.
Chris, who grew up in Spain and is based in London, makes several research trips a year to Latin America with T. Rowe Price colleagues to stay abreast of economic and political developments as well as bank balance sheets. He regularly visits with executives from incumbent private and state‑owned banks, industry leaders, central bankers, and new entrants.
“I also like to meet with other corporates— industrial, retail, and consumer companies—to get their views on the health of the economy and consumption trends,” he adds. “That gives me insight into what’s happening on the ground and how consumers are feeling, which helps in assessing banks’ asset quality and growth potential.”
Going Beyond the Numbers Reveals the Full Story
At. T. Rowe Price, our investment approach is to go beyond the numbers when evaluating what companies may offer the best future potential. By getting out into the field we gain insights and a deeper understanding of where a company or industry stands and where it could go in the future.
Chris notes that “one of the challenges in our efforts is that the political and economic backdrop in these countries can be very volatile, particularly in Brazil, where the economy is recovering from a steep recession. Competition is also heating up in this market from new financial technology (fintech) challengers, and the pace of innovation is fast, so getting a firsthand look at these developments is very important.”
For example, on a recent trip, he met with the chief executive officer of Itau, Brazil’s largest private bank. He also met with the head of the bank’s merchant acquiring business for more in‑depth perspective at the operation level.
“I got important, detailed insights on potential disruption from new entrants,” Chris says. “I also gained a better understanding of which of their divisions are most at risk and how the bank can protect profitability through a combination of anticipating competitors’ moves, improving customer service, optimizing pricing, and reducing costs.”
While many banks have not fully recovered profitability from the global financial crisis a decade ago, Chris says Brazilian banks “have been very resilient with great returns.”
Getting Ahead of Change
That strong profitability can also pose a risk because it has attracted many fintech entrants. “The pace of innovation in Brazil is really impressive, so we also meet with these companies that could eventually disrupt the banks,” Chris says. “We need to assess whether these banks will be as profitable three to five years out.”
The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for the portfolio, and no assumptions should be made that the securities identified and discussed were or will be profitable.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.