Analysis of Financial Sector in Central America

For the last four years the loan portfolio of the Salvadoran financial system has been growing at an average rate of 3.5%, below the 11% growth average in the rest of the region.

Monday, August 11, 2014

A report produced by the rating agency Moody's notes that growth in El Salvador's financial sector has been stagnant since 2010, as the total loan portfolio has not achieved growth rates above 3.5% per year.

A statement about the report published by Moody's notes that "... this low growth is due to the lack of dynamism in the Salvadoran economy."

Regarding the performance of the financial system in Central America, it notes that "...The key risk in the performance of banks is focused on the the Isthmus' dependence on the economic performance of the United States, high levels of dollar funding and the challenge of extending credit to the informal sector. "

"...Continued economic growth will benefit banks in Central America, but the region's dependence on a still moderate recovery in the United States, high dollarization and high levels of economic inequality and informality are still key risks.



More on this topic

Costa Rica: Crisis Weakens Credit Portfolio

September 2020

The high levels of unemployment and the poor growth of credit are factors that have worsened in the context of the economic crisis generated by the outbreak of covid-19, which has led to the deterioration of the credit record of customers.

Costa Rica's economic situation worsened in the current economic crisis scenario, a damage that is evidenced by the rise in unemployment, since during the second quarter of 2020 the unemployment rate rose to 24%, a proportion that doubles the 12% reported for the same period in 2019.

Complicated Economic Scenario

September 2018

The deterioration of the economy and rising unemployment are the main reasons behind the difficulties faced by companies and individuals in Costa Rica in paying back their bank loans.

According to figures from the General Superintendence of Financial Entities, between January 2017 and July 2018, the percentage of loans in defaults for more than 90 days or in judicial collection, went from 1.65% to 2.51%, showing an upward trend in recent months.

Hostile Outlook for Central American Banking

September 2016

Moody's warns of the risks faced by banks in Central America in the context of a rising trend in interest rates and dollarization of their loan portfolios.

From a report by Moody's:

Mexico, September 14, 2016 -- Banks in Central America face rising asset risks as interest rates look set to rise in the region, pushing up debt service costs for borrowers, according to a report from Moody's Investors Service. 

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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