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.
Panama excelled in the growth of its loan portfolio in the last four years, in line with the economic dynamism seen there. At the other extreme, the loan portfolio of El Salvador came to a standstill. Although the economic environment has improved over the period of the global financial crisis, Fitch does not expect banks to grow to the level registered prior to the crisis in the short term. Also, Fitch believes that the banking systems will grow unevenly, with Panama at the head, while El Salvador and Nicaragua have the lowest prospects.
The global crisis impacted on the quality of bank loans in the region. In particular, banks in El Salvador, Costa Rica and Nicaragua reported significant increases in payments in arrears between December 2007 and June 2011. However, what stands out is the ability to absorb losses of the Salvadoran banks, reflected in its outstanding capitalization and reserve coverage for impaired loans. In Fitch's view, banks in the region will continue to gradually control the deterioration of their loan portfolio, provided that the economic environment does not suffer a relapse, although it will take more time for El Salvador, Honduras, Costa Rica and Nicaragua to return to pre-crisis levels.
Source: Fitch Ratings Centroamerica
More on this topic
September 2009
Fitch Ratings issued a special report: "Central American Banking: Evolution of the Crisis and Learnt Lessons".
In Fitch's opinion, the negative impact the international crisis had on Central American banks was very evident in 2009. The current economic context poses growing risks for the sector, as well as an important challenge for this year.
January 2012
A Fitch Special Report indicates better positioning in the face of external uncertainty.
SUMMARY
Strengthened Financial Performance:
The banking systems of Central America and the Dominican Republic (hereinafter the region) will continue to strengthen their financial performance as the region continues to recover its rate of GDP growth, estimated at about 4% by 2012 under Fitch’s baseline scenario.
March 2010
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.
April 2009
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.
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