“We’re conservative banks, and this is our first foray into Latin America,” said China Construction Bank's Weinshank. “[With the IFC guarantee] you’re taking a double-B risk and supplanting that with a triple-A risk.”
Currently, a fair share of deals between Latin American and Asian banks are mediated by U.S. corporations at a cost. But Latin American financial institutions are increasingly eager to establish a direct line with Chinese Banks to make a deal speedier and cheaper, the IFC’s Alves pointed out. IFC guarantees between Latin America and China shot up 93 percent between 2007 and 2011. For Asia as a whole, that figure jumped to 98 percent for that same period.
Despite considerable geographical distances, high communication costs, diametrical time zones, and language and cultural differences, those figures are expected to grow.
“I see a mutual interest for Latin America and China to work together,” said Alves. “But it's not as straight forward.”
For one, Chinese banks don’t borrow in LIBOR. Plus, the Chinese renminbi (RMB) and U.S. dollar exchange rate make borrowing costs in U.S. dollars pricier for Chinese banks.
“If they were in RMB, we’d be very interested,” says Weinshank of China Construction Bank. “I think the Chinese banks would be a lot more interested.”