Central American Banks: Outlook 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.

Tuesday, January 6, 2015

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.

El Salvador:
Consumer loans continue to drive credit growth. The latter continue to exceed by more than 2% in nominal GDP, because credit is recovering after nearly a decade of stagnation. However, the credit of the banking system will continue to grow at rates below the average for the region in 2015, in an environment of low economic dynamism.

Fitch anticipates that the credit portfolio of the banking system will grow at a rate close to 11% in 2015, while the ROAA be around 1.3% and the ratio of equity to assets, 10%. The performance of the system will remain moderate. The MIN presents little potential for improvement in the high competition, but efficiency and supplies will be sustained at good levels. Similar to 2014, personal loans continue to grow faster than business, with some banks strategies to defend their margins and profitability.

The loan portfolio of the Honduran banking system will continue to grow at a rate close to 10% in 2015, driven by wholesale loans. This growth will be close to 1.5x the nominal GDP, in line with its historical average. Meanwhile, asset quality will not have significant variations and remain in a comparatively weak compared with that of other banking systems of Central level. The portfolio delinquency indicators recorded close to 3% reserve coverage will be located about 4.5% of gross loans. The dollarization of balance sheets, which is close to 30%, will continue as a potential source of credit risk.

Banks hold high credit growth during 2015. This will remain above 20% per year and exceed by more than 2% of nominal GDP. Retail loans (consumer and mortgage) will be the main driver of this growth, supported by favorable economic environment and low banking penetration.

The performance of banking will be stable and healthy, helped by the good economic environment. However, the slowdown in the economy continue to be reflected in credit growth, which will remain below 10%, according to Fitch estimates. The slowdown in credit attends the slowdown in commerce, so the growth will be driven primarily by the consumer segment in 2015. The greater weight of the segments of consumer and mortgage loan portfolio presents a potential risk of deterioration of the portfolio. However, loan quality sound prevail in the short term. The agency estimates that loans with arrears over 90 days will remain below 1% of the total.

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%.

Nicaragua: Bank Credit Maintains Growth

August 2016

In June 2016 the gross credit portfolio grew by 23% compared to the same period in 2015, led by personal, commercial and livestock credit, which grew by 32% and 25% and 26%, respectively.

From a report by the Central Bank of Nicaragua:

2016 Outlook for Banking Sector in Central America

December 2015

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

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.

Salvadorian Banks: Fitch Annual Review & Outlook

April 2008

El Salvador's banking system exhibited moderate growth in 2007, primarily aided by a continued increase in consumer loans and mortgages, as well as faster commercial loan growth, according to a Fitch special report published today, titled 'Salvadoran Banks: Annual Review and Outlook'.

In 2007, El Salvadoran banks' total assets expanded by 11.4% in nominal terms (5.8% in real terms), while overall net profits declined by 12.4%, due to higher provisions. Additionally, non-performing loans increased to 2.1% of total loans as of December 2007 (versus 1.9% in 2006), despite significant non-performing loans throughout 2007. However, loan loss reserves appear to be adequate and relatively stable in terms of both non-performing loans (120%) and total loans (2.5%).

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