British banks are back in Latin America

Crown Agents Bank's growing business in Latin America, shows that UK financial institutions still have plenty to offer the region, writes Mauricio Munguia, Regional Banker at CAB...

At Crown Agents Bank (CAB), we are more than a traditional bank. We are committed to using our capabilities to resolve social problems, fight against poverty, support financial inclusion and help local, medium-sized banks in Latin America grow.

We have seen that in Latin America, medium-sized financial institutions struggle to reach the global market or access a full range of currencies. That’s where we can use our expertise and experience in dealing with emerging and frontier (what we prefer to term ‘hard-to-reach’) markets to support liquidity and global connectivity.

I would like to say that the financial market is very competitive. Yet at CAB, our competitive advantage is our expertise in more complex markets. We try to be very close to our customers and anticipate their demands. We work with international development organisations that are active in lower-income economies. For example, we are strong in Africa, where there is a strong need for improved FX and payment infrastructure. Indeed, the bank has 200 years of experience specialising in frontier and emerging markets. We hope to share that experience with new partners.

CAB’s Latin American footprint

We have very good relations with banks in Mexico, Bolivia, Central America and Brazil. But our Latin American footprint is much smaller than our exposure in Africa or the Caribbean. For example, there is one single country in West Africa, where we have ten liquidity providers, whereas we don’t even have ten liquidity providers in all of Latin America. So we need to expand our partnerships in the region.

Latin America has lots of serious challenges, such as inequality and a lack of financial inclusion, and CAB’s approach can be complementary to efforts to resolve these. Let’s look at Guatemala, for example, a country that we visited recently. The country has done a great job on the macroeconomic side of things, because it has controlled inflation while keeping interest rates low.

However, and we discussed this with colleagues at the Guatemalan Central Bank, there are still lots of Guatemalans living in poverty. The country has record levels of reserves, but those foreign currency inflows are largely a result of the remittances it gets from workers that have left the country. Like my own country, Mexico, Guatemala is overly reliant on exporting its human talent and capital and that’s something that has to change.

Potential in Latin America

In addition to the countries that I have mentioned, we think that Bolivia, Nicaragua, Honduras and the Dominican Republic would be ideal markets where CAB can help. We are very keen to work with medium-sized banks in those countries and have them as liquidity providers.

Mauricio Munguia, Regional Banker at CAB

Another key area is to work with central banks and help them protect their reserves. Lots of Latin American banks have high levels of foreign debt, which requires paying lots of interest. When central banks use their hard currency reserves to pay foreign debt they are using funds that could be better spent on social necessities, such as schools and hospitals. We can help, because we work with international development organisations that operate in those countries and need local currency. So we act as an intermediary helping the central banks receive hard currency, while the development organisations get the local money they need to fund operations. In doing so we help the bank protect its foreign reserves.

We believe we could provide these solutions in Bolivia, Nicaragua and Honduras. In short, we can help Latin American countries improve their access to G10 currencies and share our unique FX and payments expertise, in a way that supports a country’s ambitions.

Is British banking coming back to Latin America?

Latin America has lots of potential, and we were seeing increasing demand for LatAm currencies from our clients, so for us, it was an easy decision. Of course, some British banks left the region for different reasons, but I can tell you that we are seeing plenty of opportunities in Latin America.

Nearshoring is a massive theme that will create growth in Mexico and Central America. We see Asian companies investing in manufacturing facilities in Latin America to integrate themselves into US supply chains. In the last decade, we’ve seen a massive increase in the number of free trade agreements that Latin American countries have with the rest of the world, which is helping to better integrate the region into the world economy.

Another important factor is Latin America’s demographic bonus. You have a lot of young people in the region looking for opportunities and that will drive economic growth. You also have natural resources, for example Bolivia has the world’s largest lithium reserves. China and Russia have shown that they want to invest in these resources.

But the region isn’t guaranteed success. It needs to create a legal framework that provides security to international investors. It has to be a win-win. By that, I mean that international investors need to develop projects that generate employment, boost tax revenues and improve the lives of Latin Americans. Meanwhile the investors need to earn fair returns.

Challenges for CAB in Latin America

The challenges for a bank like CAB in Latin America are that we need to raise awareness of what we do. We need to let our potential partners  know how we have helped in other markets around the world. Of course, everyone in Latin America knows about the big global banks like JP Morgan or Santander, but they don’t realise how our, perhaps more niche expertise in helping in regions like Latin America.

Latin America has lots of potential, and we were seeing increasing demand for LatAm currencies from our clients, so for us it was an easy decision. Of course, some British banks left the region for different reasons, but I can tell you that we are seeing plenty of opportunities in Latin America...

But we know from our experience in Africa that this is not something that will happen overnight. We need to work every day and find opportunities where our unique set of services can help. We want to provide middle-sized Latin American financial institutions with access to G10 currencies. Sometimes the global banks just want to work with the big players in Latin America, which creates opportunities for us with the medium-sized corporations. We can also provide trade finance solutions for Latin American companies that are importing and exporting.

CAB growth to 2030

We are on a substantial international growth journey; we have just opened our EU business, CAB Payments Europe, in the Netherlands and we are due to open offices in the USA in the near future. Over the coming years we will have a bigger team devoted to Latin America. They will be working with local banks in the region, perhaps spreading our network out to institutions operating in secondary and tertiary cities in our focal markets.

At the moment, Latin America’s international financing flow is dominated by the US. I think we can help the region grow its links to the rest of the world. Our slogan is that we “move the money to where it’s needed,” so whether it is the south of Mexico or a jungle in Brazil, you will see CAB doing more of that in 2030.