Central America: Negative Outlook for the Banking Sector

Fitch Ratings agreed to change the perspective of the region's banks from stable to negative, arguing that the current health crisis will affect financial institutions in all countries.

Tuesday, March 31, 2020

Considering the measures that countries have adopted in the last 15 days in economic matters, following the spread of covid-19, Fitch expects that there will be a decrease in the issuance of loans.

See "Covid-19: Outlook for the Financial Sector"

Rolando Martinez, director of Central American Financial Institutions at Fitch, told Prensalibre.com that the rating agency "... 'expects that there will be a credit slowdown and banks will experience deteriorating lending pressures and lower profitability due to lower economic growth, disruption of business activities, reduction in remittances and a potential increase in unemployment."

Martinez added that "... there will be less external liquidity, so banks will depend more on local deposits, and the crisis is proving that banks' contingency and business continuity plans are working properly."

For the agency's management, the risk among banks could differ, depending on the exposure to credit segments such as credit cards, consumer, small and medium enterprises, tourism sector and with high levels of balance sheet dollarization and dependence on external financing.

According to CentralAmericaData reports, the impact of the Covid-19 crisis on the financial sector in Central America is expected to be felt mainly in services related to stock brokerage and investment advisory, where a decline is expected.

Coronavirus: How do the outlook for the region's banking sector change?

Several of our clients in the banking sector are already using the report "Information System: Covid-19 and Business Outlook" that we prepared to help companies measure the impact that the crisis will have on their activity in the coming months.

Click here to request access to this report.

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