Development banks double their efforts in Latin America as bank lending crumbles

NEW YORK, June 18 (LPC) – Global development banks mobilize billions of US dollars in capital to fund initiatives in Latin America as commercial bank lending plummets across the region, which is grappling with a peak of coronavirus cases and a sharp decline in economic performance forecast.

In recent months, IDB Invest of the Inter-American Development Bank Group, which supports private sector companies in Latin America and the Caribbean, has increased its funding program from $ 2 billion to $ 7 billion. And according to senior officials at the American International Development Finance Corporation (DFC), the Washington-based company has approved funding for projects worth more than US $ 800 million in Latin America this year.

Meanwhile, Latin American syndicated loans run by commercial banks totaled just US $ 3.5 billion for the first half of 2020, down 90% from the first half of last year, according to data from Refinitiv LPC. International banks active in Latin America have prioritized bilateral lending with their clients as they remain reluctant to conduct largely syndicated transactions as governments in the region work to slow the spread of Covid-19.

Latin American economies, which rely heavily on manufacturing, tourism and mining for growth, have come to a standstill. On June 8, the World Bank forecast the region’s economies to shrink 7.2 percent in 2020, while Peru and Brazil shrink 12 percent and 8 percent, respectively.

“The economic outlook represents an extreme scenario in the region,” said Orlando Ferreira, strategy director at IDB Invest. “If you think of (Covid-19) in waves, this wave is now hitting Latin America.”

EVERYBODY ON THE BRIDGE

Regional development banks have also stepped up their activities to complement the lending initiatives of their international peers and commercial lenders.

On Monday, the Brazilian aerospace company Embraer announced that it had finalized a loan of $ 600 million over four years to service its working capital. Brazil’s National Bank for Economic and Social Development will provide $ 300 million, while the rest will come from “private and public banks,” Embraer said in a press release.

Elsewhere, development banks, including the Central American Development Bank for Economic Integration based in Honduras, the Venezuela-based Corporacion Andina de Fomento, and Colombia’s Financiera de Desarollo Territorial, have provided millions new loans in US dollars and local currency in the past two months.

“Collaboration is essential with commercial lenders and multilateral donors,” said a senior DFC official, adding that the company had a joint pipeline of projects totaling around US $ 9 billion with the IDB this year. “Multilaterals can provide this liquidity for projects that banks are struggling to support right now. “

TO MOVE BACK

Syndicated loan issuance topped US $ 50 billion last year, according to data from Refinitiv LPC. This was the largest volume since 2007, as international lenders flocked to transactions for the region’s largest companies, including Mexican oil company Petróleos Mexicanos, its Brazilian counterpart Petróleo Brasileiro and the Brazilian pasta company and Suzano papers, among others.

“There was an opportunity for borrowers to get cheap five-year money from many banks,” said a senior banker in New York City. “Now that pipeline has completely changed. These are shorter tenors and smaller banking groups.

International banks turned to potential three-year syndicated loans. In contrast, development banks and export credit agencies are keen to co-lend or provide guarantees for bank loans in order to mitigate risks for private lenders.

For example, in April, IDB Invest doubled its trade finance facilitation program to US $ 3 billion to provide liquidity through lenders to companies in the import-export sectors.

The ripple effect of the coronavirus pandemic has not only left Latin America with a health care crisis, but also a year of below-normal economic growth. As commercial banks scale back their efforts, countercyclical lenders such as development banks will need to increase their funding commitments.

“We are the ones running towards the burning building. Our role will only increase. We will fill the void of capital flight, ”said a second senior DFC official. (Reporting by Aaron Weinman. Editing by Michelle Sierra and Kristen Haunss.)

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