LatAm banks poised “to weather” economic slowdown in 2023: Fitch Ratings

Latin American banks are ready for regional economic slowdown in 2023, Fitch Ratings said Friday.

In an article headlined “LatAm Banks Positioned to Weather Deteriorating Economic Backdrop,” the credit rating agency said “the region’s largest banks have diverse business models and strong market positions, with capitalization and earnings that should continue to provide ratings headroom and resilience.”

“The banking systems of Colombia, Mexico, Brazil and Chile are at or above pre-COVID-19 pandemic levels, which has supported their performance under heightened macroeconomic risk amid tighter fiscal and monetary policy,” it said.

“Brazilian and Mexican banks’ NII (net interest income) is between 70 and 75 percent of operating income, with the majority of loans are floating rate, which provides revenue upside in a rising rate environment,” said the agency.

However, Fitch warned that weaker loan demand and deteriorating asset quality following higher interest rates and inflation tend to delay the benefit of higher margin gains.

Moreover, “banks may face additional risk as a result of second-order impacts from lower than expected GDP growth, sustained energy price inflation and extended supply chain disruptions,” it said. ■

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