Given the normalization of economic growth in Latin America and the solid indicators they have, Moody’s sees stable credit conditions for most of the banks in the region in 2022, despite the fact that they will face risks related to inflation, which will be manageable.
In the case of Mexico, although the indicators shown by the bank are solid, a Negative perspective is maintained, in line with that of the sovereign rating. Similarly, the agency outlines a more moderate economic recovery for the country.
Although in recent months Moody’s ratified the sovereign rating of Mexico, it kept it in a Negative perspective, and with it, for the banks.
It points out that economic growth will moderate to pre-pandemic levels and above them in most of the region’s economies, except in Argentina, Panama and Mexico, where the recovery will remain moderate.
In its report, “2022 Outlook for Latin American Banks”, the agency highlights that this normalization of growth in the region will improve the operating conditions of banks, which will face manageable risks related to inflationary pressures and weakness of the banks. labor markets.
“Credit conditions will normalize in Latin America with the support of the global economic recovery and as the effects of the pandemic lessen and businesses and consumers adapt. However, the perspectives will be different for the financial systems of the different countries ”, he points out.
Vaccination rates will help
The report points out that, within this framework, consumption and labor informality will continue to be a strong driver of economic activity, which is supported by high vaccination rates that limit the effects of renewed trade restrictions and closure measures.
He adds that the countries of the region will continue to fight to restore employment levels in 2019 to increase purchasing power, but stresses that creation has not been enough so far to compensate for the loss at the beginning of 2020.
“Vaccination rates have advanced in Latin America and have exceeded 60% of the population in most countries. This situation has helped to relax restrictive health policies and generate support for the operating environment and business prospects, ”said Rodrigo Marimón, Moody’s analyst and co-author of the report.
He added that while the demographic trends of a young population and low financial inclusion present opportunities for creditors, the income inequality that exists in the region continues to affect economic recovery and social demands increase political risks.
He added that strong liquidity, adequate capitalization levels and solid reserves for credit losses will help mitigate short-term risks arising from the increase in inflation and interest rates, a situation that will affect the asset quality indicators of the largest banks, while the smaller niche ones remain vulnerable.
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