Fitch Ratings predicts good performance for the sector, but warns of risks such as intense competition in rates, exposure due to natural disasters, and inflation.
Fitch Ratings believes that the insurance industry will perform well in 2014, however, it does not rule the possibility that some factors such as strong competition in rates, exposure to natural disasters, inflation and devaluation of currencies in some countries will continue to exert pressures.
The ratings agency Fitch Rating puts El Salvador along with Argentina, Jamaica and Venezuela, in the group of countries in the region which will grow the least in 2013.
Elmundo.com.sv reports that "El Salvador, along with Venezuela and Argentina, is the country with the worst credit rating in Latin America, according to a report by the risk measurement agency Fitch, which categorizes the prospects of credit rating of these countries as 'negative'. "
Fitch Ratings believes that improving the level of efficiency in the banking system would result in a notable increase in profits.
The required improvements in efficiency in the banking systems in Central America could have a positive impact on earnings, on the internal generation of capital and, ultimately, on risk ratings, according to a report by Fitch Ratings.
Fitch Ratings highlighted in their report a “relatively stable” performance of the insurance industry in 2010.
The performance of the Guatemalan insurance industry in 2010 has been relatively stable, despite the occurrence of two catastrophic events (storm "Agatha" and the eruption of the "Pacaya" volcano in late May) and the generally stagnant premiums of the main operating branch of the industry: Motor Vehicle Insurance. Thus, advances in operating costs, especially for claims incurred in the auto industry, despite the slowdown in premiums, reversed the operating deficit, but the industry still presents accident rates higher than the combined coverage average of the Central American region, which suggests the existence of future opportunities for improvement.
A report from Fitch indicates that only in 2011 the Banks of Central America will reach profitabilitye levels that could be compared to those before the crisis.
Fitch thinks that the majority of Central America's banking systems will earn more profits than in 2009, but it will not be until 2011 when they reach profitability levels comparable to the ones they had before the crisis. The perspectives of financial performance for the Nicaraguan Banking System are less favorable than the rest of the region; meanwhile the possibility that results in Costa Rica surpass the ones in 2009'will depend basically on the evolution of the currency exchange rate.
Fitch Ratings has recently confirmed that the country's local and foreign currency risk classification as 'BB', with Outlook Negative.
El Salvador's main credit weaknesses include its comparatively slow GDP growth, a narrow income base and rigid fiscal policy, particularly apparent in the light of the country's vulnerability to the US economic slowdown and corresponding drop in capital movement.
Fitch Ratings has announced that the country’s long term foreign and local currency rating remains “BB” with a negative outlook.
Fitch has also announced El Salvador’s short term rating as “B” and the country’s rating as “BBB-”.
El Salvador’s risk profile is a function of its monetary stability (helped by its official dollarization), a good history of structural reform, a stable financial system and the continuing support of multinational institutions. In addition, the country has coped well with the global financial crisis and unprecedented domestic political transition, in which the left-wing FMLN government took power after approximately 20 years of rule by the right-leaning ARENA party.
Fitch Ratings Central America commented on the state of the Honduran banking system, in the light of recent political developments.
Risks faced by Honduran banks due to the adverse economic environment have increased as a result of recent political events in the country. A Fitch report on April 2009 reported that Honduran banks were sensibly affected by the adverse local and regional economic environment. This was particularly visible in less profit, as well as a deterioration of the loan portfolio. Right now, Honduran banks face greater challenges, due to higher currency exchange risks, and worse credit portfolios.
Guatemala´s BB+ sovereign risk rating and stable perspective, which is so close to the desired “Investment Grade,” is facing four threats.
According to an article by C.Véliz and J. Gramajo in Sigloxxi.com, Mauricio Choussy, the director of Fitch Central America, notes that four weaknesses persist in the country: “Low tax revenue, weak social indicators, social instability, and high levels of delinquency.”
On April 23 and 24, El Salvador will host the Second Latin American and Caribbean Meeting of Trade and Investment.
Among the topics to be discussed at the meeting organized by the Salvadoran Commission for the Promotion of Exports and Investments (PROESA and EXPORTA) are: the impacts of the global crisis on developing countries and the measures that have been taken to mitigate it; an analysis of the Latin American and Caribbean competitive situation in infrastructure and trade services and the situation of the tourism sector, including its current challenges and opportunities.
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