Latin American banks capable of weathering tough economic environment, says Fitch By Reuters

2023-07-07 22:16:37

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03/03/2016.
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By Nelson Bocanegra

BOGOTA (Reuters) – Latin American banks have solvency levels that make it possible to manage a backdrop of high interest rates and an economic slowdown likely to last into 2024, a senior Fitch executive told Reuters.

For him, concerns will fall mainly on the deterioration of credit portfolios.

Latin American banks have shown high resilience in the face of shocks seen over the past three years, including the pandemic, the impact of the war in Ukraine and high inflation, according to the credit rating agency.

These factors have squeezed banks’ margins, making it harder for smaller institutions to lend, and have impacted overall profit.

“The average bank is in good shape to continue to face these challenges,” Alejandro Garcia, Fitch’s head of Latin America financial institutions group, told Reuters by telephone from New York.

Banks face more benign conditions in Mexico, Brazil, Panama and Chile, Garcia said on Thursday, citing expectations of better economic performance in those countries. On the other hand, conditions are less favorable in Colombia, Peru and Argentina, which are also affected by political uncertainty.

Although Garcia highlighted the stability of Latin American banks in terms of financing and credit– especially in relation to solvency –, as well as their funding and liquidity profile, he warned of the deterioration of loan portfolios, with an increase in defaults .

“The game for this year and possibly part of the next one is to see how the deterioration of (credit) portfolios unfolds and how the environment of greater political uncertainty and lower economic dynamism also affects the potential decrease in loans granted by banks”, he said.

The economic slowdown could cause shifts in traditional banks, and fintechs could gain more market share, Garcia said.

(Reporting by Nelson Bocanegra)