Moody's Warns of Weaknesses in Centralamerican Banks
The banks Banco de Costa Rica, Banco Nacional and the Banco Industrial de Guatemala "will have to reduce the growth rate of their loans, since their core capital levels remain modest."
Wednesday, July 22, 2015
From Moody's press release:
Mexico, July 21, 2015 -- Central America's leading banks will need to slow the pace of their loan growth as their core capital levels remain modest, said Moody's Investors Service in a new report.
The relatively low core capital levels at three of Central America's largest banking franchises -- Guatemala's Banco Industrial, Banco de Costa Rica (BCR) and Banco Nacional de Costa Rica (BNCR) -- are credit negative. Moody's said the banks, which have averaged 14% loan growth since 2012, need to slow the pace of their lending expansion in light of their core capital constraints.
"Core capital levels at Central America's leading banks are not enough to maintain the current pace of growth over the long term," said Moody's Analyst Georges Hatcherian. "The low core capitalization at Banco Industrial, Banco de Costa Rica and Banco Nacional de Costa Rica will make it harder for these banks to confront rising local and regional competition."
Low core capitalization relative to global peers drove Moody's to lower its Baseline Credit Assessments (BCA) for all three banks in June 2015. The BCA of Industrial was lowered to ba3 from ba1, while the BCAs of both BCR and BNCR were lowered to ba2 from ba1.
Despite their different governance structures, all the three banks face pressures to core capitalization. For Industrial, a private bank based in Guatemala, high dividend payouts weigh on the bank's capacity to generate capital. Although BCR and BNCR -- public banks -- do not pay dividends, both are required to transfer about 20% of their pre-tax income on average to government programs.
Moody's said it believes the reported capital ratios at the three banks overstate their ability to absorb losses, given that they incorporate understated risk-weighted assets and low-quality capital, including goodwill from acquisitions at Industrial and illiquid government securities at BCR and BNCR.
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According to Moody's Costa Rica is one of the economies that could be affected significantly if after the presidential elections the U.S. decides to restrict its international trade policy.
From a press release by Moody´s:
New York, September 22, 2016 -- Mexico (A3 negative) and Costa Rica (Ba1 negative) are among the most exposed economies in the Americas, if the US (Aaa stable) were to shift toward a retrenchment from trade and investment ties after the November presidential elections, according to a report by Moody's Investors Service. Canada is less exposed since it does not benefit from the low labor costs that incentivized the offshoring of manufacturing operations.
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.
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.
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.
The sector's growth has been hampered by the ceilings imposed by the Central Bank of Costa Rica on the growth of the credit portfolio.
The BCCR last February set a limit on growth of 12% for the private financial sector, in order to remove excess colones that had to be used to maintain the status of the dollar.
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