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.
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.
According to Fitch Ratings, banks in Nicaragua will continue to be pressured by the remaining effects of an economic contraction for the second consecutive year, a situation derived from the political crisis affecting the country.
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.
It is difficult to understand - especially because it has been made public - how a major state bank has described the International Bank of Costa Rica as "high risk" while another main state bank has stated the opposite.
EDITORIAL
The banks involved are Banco de Costa Rica (BCR) and Banco Nacional (BN). Between them they are the owners of Banco Internacional de Costa Rica (BICSA), with 51% of the shares the first and 49% of the second.
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 most perverse thing about the credit risk rating system is that it has weakened (deliberately?) the indispensable analytical skills of investors.
The resignation of Standard & Poor's chief executive of following the agency’s downgrading of the U.S.’s credit rating, reveals the fragility of the whole risk rating system.
Rating agencies are in the pillory, especially after episodes like the mortgage crisis of 2008 - or before that- the shameful Enron episode. It is not helping that it was the president of S & P who was the fuse that went off when the system became overheated by the sacrosanct downgrading of the United States’ rating.
Fitch Ratings lowered the bank’s long term risk rating from “B(pan)” to “B-(pan)”; the outlook is now stable.
Transatlantico’s short term rating was affirmed at “B (pan)”.
A lower long term rating comes as a result of a lower quality asset portfolio, in addition to less income generating capacity, due to less productive assets. The “stable” outlook implies that the bank has high probability of maintaining its negative results over the next two years.
The company raised Nicaragua's foreign currency government bond rating to B3 from Caa1.
"The upgrade of the foreign currency bond rating unifies that rating with its domestic currency counterpart," said Moody's Vice President Gabriel Torres. "This action reflects our view that, with rare exceptions, a government is equally likely to default on its domestic and foreign currency obligations."
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
The Fitch report notes that the negative effects of the global crisis have intensified in Nicaragua.
Fitch Ratings – San Salvador/San José, September 24, 2009. The risks faced by microfinance institutions worldwide have aggravated over the past year. The lesser favorable economic conditions have deeply impacted the populational sectors in developing countries that have managed to overcome poverty and compose an important segment of microfinance institutions.
Fitch Ratings reported that the risks to regional banks during the current crisis are growing and represent a major challenge for 2009.
The combination of reduced credit expansion, fund restrictions and increasing loan provisions have limited the profits of most banks and it is expected for these factors to continue to pressure the results in the coming months.
Fitch Ratings reported that the risks to regional banks during the current crisis are growing and represent a major challenge for 2009.
The combination of reduced credit expansion, fund restrictions and increasing loan provisions have limited the profits of most banks and it is expected for these factors to continue to pressure the results in the coming months.
From abundance to scarcity: Challenges faced by Central American banks in an
environment of tight liquidity.
After having been hit hard by the US mortgage crisis in 2008, large US and international banks have considerably weakened, in some cases escaping from bankruptcy only thanks to strong government intervention. Such an event has eroded the public’s confidence in the financial system worldwide.