From Mexico to Brazil, interest rates are still quite high in Latin and Central America. With 10-year government bond yields in the double-digits, Brazil is one of the bright spots for international banks. Watch this podcast to learn how giants like Banco Santander (NYSE:SAN) are capitalizing on higher interest rates in Brazil, and why Latin American banking has its own unique perils.
In this clip from the Industry Focus: Financials podcast, The Motley Fool's Gaby Lapera and contributor Jordan Wathen discuss the unique risks and opportunities of lending to Latin American consumers and borrowers relative to lending in established markets around the world.
A transcript follows the video.
This podcast was recorded on July 18, 2016.
Gaby Lapera: One of the reasons that Santander expanded to South America, besides the fact that they're originally Spanish and it made sense for them to go to Latin America, it just makes sense in terms of language and all of those good things, is because there's a lot more opportunity in terms of interest rates in nations that are in economic growth periods and political development periods versus the Western world, where interest rates are very, very low right now.
Jordan Wathen: Right. Basically, the U.K. is supposed to be the anchor and it's supposed to provide the consistency, and then Latin America's where you can really get some fat loan yields. You can put your money to work and earn a very good spread. The Brazilian 10-year rate, for instance, government bonds in Brazil yield 12%. In Mexico, they yield 6%. In Chile, they yield 4.4%. That's really a basis to understand ... In the United States, for example, you're not going to earn much on deposits because you're going to pay, at a minimum, 0% for them, and hope to lend them at 3 or 4%. In Brazil, where the government bond yield is 12%, there's obviously much more room to carve out a margin between what you're lending at and what you're paying on your deposits.
Lapera: For everyone who was wondering how Brexit and Latin America are intertwined for this bank, this is why.