Arguing that a lower economic growth and a higher fiscal deficit are expected due to the effects of the covid-19, the agency decided to modify from BB to BB- the country risk rating.
The situation of the tax burden in the country is another factor affecting Fitch's decision, which was communicated to the Banco de Guatemala through the preliminary bulletin that the agency sent to the authorities.
Fitch Ratings forecasts that the insurance sector in Central America will close 2018 with a year-on-year increase of almost 6% and expects that in 2019 the business will reach a very similar growth rate.
The projected increase for 2018 and 2019 would be based on the behavior of the Panama, Costa Rica and Guatemala markets, however, the increases of 5.8% and 6.1% forecast for 2018 and 2019, respectively, would represent a slowdown regarding the 8.2% growth registered in 2017.
Fitch Ratings predicts good performance for the sector, but warns of risks such as intense competition in rates, exposure due to natural disasters, and inflation.
Fitch Ratings believes that the insurance industry will perform well in 2014, however, it does not rule the possibility that some factors such as strong competition in rates, exposure to natural disasters, inflation and devaluation of currencies in some countries will continue to exert pressures.
Fitch Ratings believes that improving the level of efficiency in the banking system would result in a notable increase in profits.
The required improvements in efficiency in the banking systems in Central America could have a positive impact on earnings, on the internal generation of capital and, ultimately, on risk ratings, according to a report by Fitch Ratings.
Fitch suggests an increase in tax burden in order to improve government spending and thus achieve higher social spending.
This will improve the country´s risk ratings and thus attract investment, said Erick Campos, Executive Director of Fitch.
Sigloxxi.com includes statements from the executive, "Guatemala has maintained a record of good macroeconomic management, which has allowed it to have good credit ratings, but cannot advance any further because social conditions are not the best, so to progress, the State must increase social spending and therefore needs more revenue. "
Fitch Ratings highlighted in their report a “relatively stable” performance of the insurance industry in 2010.
The performance of the Guatemalan insurance industry in 2010 has been relatively stable, despite the occurrence of two catastrophic events (storm "Agatha" and the eruption of the "Pacaya" volcano in late May) and the generally stagnant premiums of the main operating branch of the industry: Motor Vehicle Insurance.
A report from Fitch indicates that only in 2011 the Banks of Central America will reach profitabilitye levels that could be compared to those before the crisis.
Fitch thinks that the majority of Central America's banking systems will earn more profits than in 2009, but it will not be until 2011 when they reach profitability levels comparable to the ones they had before the crisis.
Guatemala´s BB+ sovereign risk rating and stable perspective, which is so close to the desired “Investment Grade,” is facing four threats.
According to an article by C.Véliz and J. Gramajo in Sigloxxi.com, Mauricio Choussy, the director of Fitch Central America, notes that four weaknesses persist in the country: “Low tax revenue, weak social indicators, social instability, and high levels of delinquency.”
The credit rating company Fitch warned that rising interest rates and out-of-control inflation could cause debtors to default on their loans.
Maurice Choussy, executive director of Fitch Centroamérica, said the rise in inflation is affecting the ability to pay for both families and businesses.
As well, he said, they must face the high costs of primary materials and salary demands from employees.
The International Bank of Costa Rica (Banco Internacional de Costa Rica) has launched a debt issue in Panama with a maturity of three to five years.
With capital payments on maturity and quarterly interest payments the issue will be for 50 million dollars in series.
The issue, whose interest rate will be previously agreed to upon placement, is currently being subscribed.
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