Central American Banks Resists Contagion

Fitch believes that increased volatility of international markets has had only a marginal effect on the stability of savings in the banks passive mix.

Tuesday, July 10, 2012

The funding of the Central American banks, led by domestic deposits in about 90%, had its strength tested during the spread of the financial crisis, according to a new report from Fitch Ratings.

Central American banks' borrowing from financial institutions outside the region remains low relative to the weight of its liabilities, serving mainly to finance foreign trade and long term operations. Fitch believes that increased volatility of international markets has had only a marginal effect on the stability of savings deposits and the banks passive mixture.

'Deposits increased on average between 8% and 14% in the last four years, exceeding the growth of nominal GDP in several countries in the region", said Rene Medrano, Senior Director. Furthermore, the still low level of banking in the region means significant opportunities for banks to finance the growth of their loan portfolios by expanding its savings base, particularly in Nicaragua, Honduras and Guatemala.

When deciding where to save, depositors favor coverage and services offered by banks over the type and origin of stock ownership. In general, larger banks and good franchises have more flexibility to continue expanding their credit base through local funding.

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