by Moises Vidal, Director, Global Treasury Solutions, Latin America Financial Institutions and Morgan Downey, Global Product Head, Global Custody and Agency Services at Bank of America Merrill Lynch
Opportunities are plentiful for Latin America’s non-bank financial institution (NBFI) industry. Many of the sectors which are included under the NBFI umbrella have experienced significant growth in recent years and this is set to continue, with a number of institutions currently focusing on aggressive expansion plans. With a promising future ahead, how can NBFIs in Latin America position themselves most effectively for growth and how can banks best support them?
First of all let’s clarify what is meant by the term NBFI. NBFIs are simply financial institutions which are not classified as commercial banks. Examples include insurance companies, pension funds, credit card companies, factoring companies and broker dealers. These institutions have an interesting relationship with commercial banks: on the one hand NBFIs compete with them, but on the other they complement the products and services which commercial banks offer. On both counts, NBFIs have a role to play in driving innovation and efficiency within the financial industry as a whole.
Looking at NBFIs by sector, our own market analysis shows that insurance companies comprise almost a third of NBFIs in Latin America, while broker dealers represent 25% and pension funds 15%. Credit card companies make up 11% of the industry while factoring companies and hedge funds represent 8% each. Asset managers and clearing houses make up a smaller portion of the total, at 5% and 4% respectively.
These figures show the breakdown of NBFIs across Latin America as a whole, but at a country level the extent of maturity of different NBFI sectors varies considerably. Mexico and Brazil are Latin America’s biggest economies and they also have the most developed NBFI sectors, with a healthy number of insurance companies, broker dealers, factoring companies and hedge funds. NBFIs also play a strong role in Chile, Peru and Colombia, which tend to support three or four NBFI sectors, such as insurance companies, broker dealers, factoring companies and pension funds. Elsewhere in the region, countries like Argentina, Paraguay and Uruguay tend to maintain just two well established NBFI sectors, typically insurance companies and broker dealers.