In the first webinar of the year organized by the rating agency Moody’s, called “2024 Latin America Banking Outlooks”, the trends and prospects for the region’s banking systems were addressed, with Argentina, Panama and Colombia as the markets that will present a more complex situation , while Peru presents itself with a better scenario.
In this regard, Ceres Lisboa, associate director of Moody’s, commented that The global outlook is “negative”, but in Latin America it remains stable for most systems.
“We have, to a large extent, favorable dynamics in most of our countries in the region, with positive implications of the monetary flexibility cycle that began in 2022. And that will lead us to positive implications over the coming quarters, particularly on asset quality and profitability, while capital and liquidity will remain fairly stable“, he pointed.
He added: “The positive banking systems are Mexico and Paraguay, specifically in the North American country due to the growing activity in the country.”
In this regard, Felipe Carvallo, senior vice president of Moody’s, pointed out that “favorable operating conditions will promote higher business volumes and stronger profit generation…Low unemployment is supporting a healthy risk appetite for retail lending, which, coupled with strong peso and nearshoring-related investments, we expect to drive deal volumes over the next 12 to 18 months.”
For her part, Susana Almeida, an analyst at the firm, commented that they hope that The full impact of nearshoring on the industry “will be more evident by the end of this year or early 2025.”. And, once the easing of the monetary cycle in Mexico progresses, it should also provide some boost to demand for corporate loans.”
Regarding this trade trend, the expert pointed out that Some Central American countries, such as Costa Rica and El Salvador, are already showing some signs of increased investment due to nearshoring. “We think that the impact of this trend on the banking system will materialize, but it will develop gradually because investments are likely to be made gradually over the next two years, and the benefits for banks will materialize in at least two phases,” he explained. .
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The stable ones
When addressing Chile, Moody’s highlighted its stability even though it is not at the level of Mexico.
At the company appreciated the “gradual improvement in loan quality that we expect to remain over the next 12 to 18 months, after deteriorating in 2022, but also on the capital reinforcement related to the implementation of Basel III.”
Added to this is the recent economic recovery that has been seen in the country.
Regarding Brazil, Alexandre Albuquerque, senior vice president and analyst, commented that ““Banks will continue to face good conditions in terms of capital financing and liquidity.”
Likewise, he said that the operating environment going forward is positive, even if the economy is a little below compared to the previous year.
Nonetheless, ““We anticipate that banks will increase lending operations at high single-digit rates and that growth will be greater than what they reported in 2023.”
Regarding Peru, Rodrigo Marimon, assistant vice president of Moody’s, commented that “We expect the banking sector to be prepared for more benign operating conditions in 2024, despite the current political instability in the country, restoring loan growth, inflation and interest rates will reduce the impact of the El Niño climate phenomenon.”
Along with this, he noted that “Lending is expected to continue expanding moderately at a rate of 6% to 8% this year, focusing on lower risk retail lending and the revival of commercial lending as the economic recovery gains pace by the end of 2024.”
Of course, he warned that will see “some large losses on subprime loans granted during 2023. However, Peruvian banks have very strong credit loss reserves, and particularly those that have accumulated at the end of 2023.” At the same time, the credit exposure to Petroperú – which is in financial difficulties – is considered marginal, but the risks increase for “certain state banks in the country.”
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The worst
The banking systems of Argentina and Colombia are those in the worst position in the region.
Regarding the first, Marcelo de Gruttola, senior analyst at the company, explained that “the trends are different from those of all countries,” which justifies that the outlook is negative.
For the classifier, The main driver of banks’ performance is the operating environment, which “is more challenging” in Argentina than in any other market. “This remains the case even as the current Government is carrying out severe macroeconomic adjustment and intends to fix the underlying problems that are causing Argentina’s macroeconomic imbalances.”
In that sense, he projected that For the second consecutive year, the recession will continue and inflation will remain high, but “one of the main risks for banks is their exposure to debt.” of the central bank or the sovereign debt of the government.”
In this way, he explained that Argentina’s macroeconomic situation “can affect banks in many ways.”
Colombia, meanwhile, has a stable outlook, but with a more negative bias, since 2024 is expected to be more challenging. Thus, “due to the low economic growth of 0.6%, an inflation that remains high and close to 9% last year, and an interest rate that, consequently, also remained high, which is why we expect the economy to continue growing little in 2024, especially with inflation falling, but at “a much slower pace than in other countries.”
The coffee market is recovering but at a slower pace than the rest of the countries in the region, although for Gruttola, “The country’s economy will most likely recover no earlier than 2025, although“As long as economic conditions improve and show growth closer to their long-term average of at least more than 3%.”
The Panamanian banking system is another one that is in a more complex stage as a result of a “weaker” operating environment for this year. “But still, the solid Banks’ financial fundamentals mitigate some risks and boost our stable outlook“Marimon noted.
Likewise, the analyst noted that fiscal challenges, political uncertainties arising from the upcoming elections to be held in May, and the drought currently affecting the Panama Canal are expected to drive a “sharp slowdown” in GDP growth to just 2.5% in 2024, from more than 7% in 2023.
“These shocks will affect the growth prospects of banks, and modest credit expansion is expected in 2024,” he emphasized, adding that macroeconomic pressures “will delay the recovery of loan quality, due to the fall in confidence in terms of the business index and the business confidence index, and also the consumer index. But One positive is that banks have reduced their exposure to certain problematic sectors of the economy to manage these risks, for example, the construction and commercial real estate sectors.
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Neobanks
Another industry trend is neobanks. In this regard, Gruttola commented that its development depends on each country. “We believe these new bank and fintech mergers have been happening for a while. There are specific cases of companies that have demonstrated great success in the development of their activities.”
Likewise, he noted that neobanks “have acted as important disruptors in the system because they require banks to show some response and introduce changes in terms of prices, in terms of market dynamics, which led banks to also act in terms of to increase their investments in infrastructure and technology.”
Therefore, for the expert “It is important to maintain and take into account the presence of these companies in the market. But we still consider that traditional banks have a fairly diversified range of products and also income, which has also maintained them as leaders in loans and financial services, at least in Brazil and other countries where we are beginning to see greater investments in the development of infrastructure, technology and also in digitalization.”
2024-04-04 04:23:12
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