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.



More on this topic

Credit to the Private Sector: Poor Outlook

April 2020

Managers of Costa Rica's financial institutions predict that due to the health crisis the country is going through, the demand for credit from companies and families will continue to fall in the coming months.

Figures from the Central Bank of Costa Rica state that between March 2019 and the same month in 2020, the balance of money lent by public and private banks to companies and families decreased by 2.3%, from $28,559 million to $27,908 million. See full data (in Spanish).

Impact of the Crisis on the Banking Sector

March 2020

Increased demand for credit and more requests for loan restructuring is part of what the covid-19 crisis has brought to Guatemala's banking sector.

According to representatives of the Guatemalan Banking Association (ABG), the spread of covid-19 and the restrictive measures that have been decreed in the country are affecting the liquidity of companies, many of which have no income and must use credit to pay their bills.

Optimism in the Financial Sector

April 2019

The change from stable to negative in the classification perspective of foreign currency debt would not have, at least in the medium term, significant effects on the Guatemalan financial system.

On April 11, 2019 Fitch Ratings ratified the long-term foreign currency default rating of "BB", but changed the outlook from stable to negative.

Central American Banks: Special Report

September 2009

Fitch Ratings issued a special report: "Central American Banking: Evolution of the Crisis and Learnt Lessons".

In Fitch's opinion, the negative impact the international crisis had on Central American banks was very evident in 2009. The current economic context poses growing risks for the sector, as well as an important challenge for this year.

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