2016 Outlook for Banking Sector in Central America

Fitch Ratings predicts headwinds and higher risks for banks in Central American countries in 2016, resulting in lower credit growth.

Wednesday, December 16, 2015

From a report by Fitch Ratings Central America:

Headwind: Central American Banking systems face greater risks in 2016. A slowdown in growth of gross domestic product (GDP) in the region and, consequently, lower credit growth is anticipated. According to Fitch Ratings, margins will remain under pressure with little possibility of them increasing before the second half of 2016.

The loan loss provisions are likely to grow with the expected impairment of assets in some markets. Dollarization in some countries remains a concern due to potential credit risks in light of a devaluation of local currencies.

Read full report (spanish).

More on this topic

Nicaragua: Prospects for Banking in 2018

January 2018

Fitch Ratings forecasts that the performance of the banking system will remain stable in 2018, despite the expected slowdown in credit growth.

From a statement issued by Fitch Ratings:

Fitch Ratings-San Salvador-23 January 2018: Fitch Ratings has maintained its stable outlook for Nicaragua's banking system, considering that its financial performance is expected to remain adequate in 2018 despite the anticipated slowdown in credit growth. Banking system performance has proven to be consistent, benefiting from the positive trend of the local economy. On average, Nicaragua's real GDP growth was 5.2% between 2012 and 2016 while credit growth was 21.5%. However, since 2016 there has been a slight slowdown in the economy and in the main credit segments (commercial and consumer loans). Fitch expects the country's economic growth in 2018 to reach 4.5%. This would imply a lower dynamism for the banking sector, with credit growth expected below 15%.

Central American Banking: Outlook for 2017

January 2017

Fitch foresees returns for Nicaraguan banks, however the result will not be as good for the banking industry in Panama, Guatemala or El Salvador.

From Fitch's report "2017 Outlook: Central American and Dominican Republic Banks"

The 2017 Central American bank rating outlook is stable for 2017, reflecting slight changes in growth and financial performance, according to a new Fitch Ratings report. The evolution of some factors, such as interest rates and private investment, or the emergence of events that could increase reputation risk could alter the banking outlook. Stable Rating Outlook: The ratings of most banks in the region have a stable outlook, reflecting the fact that their credit profile will not undergo significant changes in Fitch's base scenario. Movements in the ratings will be derived mainly from adjustments in ratings of parent banks or sovereign ratings, or of unanticipated events.  

Panama: Banking Outlook for 2016

December 2015

Fitch is warning that the risks faced by banks are increasing and loan impairment in some segments could trigger a substantial deterioration in the financial performance of banks.

From a report by Fitch Ratings Central America:

Negative Outlook for Banking Industry: Fitch Ratings believes that the risks faced by banks are increasing, although its effect on balance sheets is slow because the environment is still favorable.

Central American Banks: Outlook 2015

January 2015

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":

Costa Rica:
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.

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