Salvadorian Banks: Fitch Annual Review & Outlook

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'.

Tuesday, April 15, 2008

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%).
'A significant increase in loan loss reserves negatively affected El Salvador's banking system's overall performance in 2007, and the overall loan portfolio quality declined as a result of deteriorating consumer loan quality,' according to Rene Medrano, Director in Fitch's Latin America Financial Institutions Group.
Nevertheless, Salvadorian banks continue to exhibit adequate capitalization and liquidity levels. The overall level of capitalization, defined as total equity-over-total assets, was 11.8% as of December 2007, similar to the level reported in 2006. Going forward, easier access to funding should allow the banking system to expand its loan portfolio while maintaining adequate liquidity.
In 2008, Fitch expects that the anticipated decline in interest rates over the next few months may lead to further growth in the demand for personal loans. As a result, consumer loans and mortgages should continue to drive overall loan portfolio expansion. Additionally, the arrival of well-established international banks should lead to better business practices throughout the system.
On the other hand, Fitch expects that greater political uncertainty in El Salvador, due to upcoming general elections, could limit private investment and loan portfolio growth in 2008, particularly during the second half of the year when the Banco Central de Reserva de El Salvador may raise minimum reserve requirements for local banks in order to ensure stability in the system.

The full report is available on the Fitch Ratings web site, www.fitchratings.com.

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%.

Panama: Banking Outlook - November 2017

November 2017

Fitch Ratings reports growth in non-performing loans by medium-sized Panamanian banks, influenced by a less dynamic but still benign operating environment.

From a report by Fitch Ratings :

Medium Panamanian Banks Adjust to Less Dynamic Environment

Central American Banks: Outlook 2015

January 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.

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.

Central American Banks: Special Report

September 2011

Fitch Ratings has issued a special report entitled, "Central American Banking: After the Crisis, a Disparate Evolution"

In Fitch's opinion the banks have shown a mixed performance in Central America during the period of the global financial crisis. At the same time, banking systems have dissimilar perspectives on future performance, reflecting different economic growth prospects in the region.

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