El Salvador's banking system exhibited moderate growth in 2007, primarily aided by a continued increase in consumer loans and mortgages, as well as faster commercial loan growth, according to a Fitch special report published today, titled 'Salvadoran Banks: Annual Review and Outlook'.
In 2007, El Salvadoran banks' total assets expanded by 11.4% in nominal terms (5.8% in real terms), while overall net profits declined by 12.4%, due to higher provisions. Additionally, non-performing loans increased to 2.1% of total loans as of December 2007 (versus 1.9% in 2006), despite significant non-performing loans throughout 2007. However, loan loss reserves appear to be adequate and relatively stable in terms of both non-performing loans (120%) and total loans (2.5%).
'A significant increase in loan loss reserves negatively affected El Salvador's banking system's overall performance in 2007, and the overall loan portfolio quality declined as a result of deteriorating consumer loan quality,' according to Rene Medrano, Director in Fitch's Latin America Financial Institutions Group.
Nevertheless, Salvadorian banks continue to exhibit adequate capitalization and liquidity levels. The overall level of capitalization, defined as total equity-over-total assets, was 11.8% as of December 2007, similar to the level reported in 2006. Going forward, easier access to funding should allow the banking system to expand its loan portfolio while maintaining adequate liquidity.
In 2008, Fitch expects that the anticipated decline in interest rates over the next few months may lead to further growth in the demand for personal loans. As a result, consumer loans and mortgages should continue to drive overall loan portfolio expansion. Additionally, the arrival of well-established international banks should lead to better business practices throughout the system.
On the other hand, Fitch expects that greater political uncertainty in El Salvador, due to upcoming general elections, could limit private investment and loan portfolio growth in 2008, particularly during the second half of the year when the Banco Central de Reserva de El Salvador may raise minimum reserve requirements for local banks in order to ensure stability in the system.
The full report is available on the Fitch Ratings web site, www.fitchratings.com.
Up to September 2016 annual growth in the loan portfolio of the banking system decreased from 23% to 20%.
From the Central Bank´s financial report, September 2016:
Credit growth declined. In September 2016, gross loans totaled 136,803.4 million cordobas, with a growth of 20.0 percent. This represents a decrease of 3.1 percentage points compared to the figure seen in September 2015.Meanwhile, real credit growth declined by 3.9 percentage points compared to that observed in September 2015 (19.8% vs 15.9% 2015 2016).The gross loan portfolio of the financial system remains active with the most weight in the balance of the financial system (66.0%).
Slow growth is projected in El Salvador, very good performance in Nicaragua, stability in Panama, more competition in Guatemala and moderate growth in Costa Rica.
From a report by Fitch Ratings entitled "2015 Perspectives: Central American Banks":
Fitch Ratings has revised the outlook for the sector from positive to stable, because the agency does not anticipate substantial improvements in respect to the previous year. The system's profitability will remain low, with less than 1.0% ROAA. The results are limited because of the high dependence on net interest margin (NIM) and additional expenses in provisions for loan losses, due to regulatory changes that established gradual constitutions of general provisions for the best qualified loans. In addition, Fitch does not anticipate improvements in revenue diversification and also foresees a significant revenue exchange rate differential. This last factor has a significant influence on the results of the banks in Costa Rica.
Fitch Ratings has issued a special report entitled, "Central American Banking: After the Crisis, a Disparate Evolution"
In Fitch's opinion the banks have shown a mixed performance in Central America during the period of the global financial crisis. At the same time, banking systems have dissimilar perspectives on future performance, reflecting different economic growth prospects in the region.
The Fitch report notes that the negative effects of the global crisis have intensified in Nicaragua.
Fitch Ratings – San Salvador/San José, September 24, 2009. The risks faced by microfinance institutions worldwide have aggravated over the past year. The lesser favorable economic conditions have deeply impacted the populational sectors in developing countries that have managed to overcome poverty and compose an important segment of microfinance institutions.
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