While the banking system in Panama continues to grow and prosper, throughout the rest of Central America the sector was characterized by lower loan growth, lower returns and higher funding costs. Note. Panama’s funding costs are amongst the lowest.
Fitch has presented its Special Report on the Central American Banking System, which analyzes the performance of the sector in the period between July 2012 and June 2013.
The rating company highlights:
Low Credit Growth:
The loan portfolios of most banking systems in Central America slowed their growth rates in 2013, in line with the downward revision of the region’s GDP. In June 2013, the annual growth of loan portfolios of five Central American countries stood in the range of 6% to 12% in real terms, although it was only 2.2% in Honduras. According to Fitch Ratings, loans in the region will close 2013 with real growth of about 7% (2012: 8.9%). Panama will lead the growth of the loan portfolio, but inflationary pressures throughout the region will be an additional limit to real credit expansion.
Less Profitability:
Although the profitability of banks is good, it has decreased in 2013, except in El Salvador and Nicaragua. Fitch estimates that the return on assets of the Central Banking will close 2013 at 1.4%, slightly below the previous year (1.6%). The profit growth will be limited by higher funding costs and less growth of credit portfolios. Fitch does not anticipate improvements in the operational efficiency of the banks to offset the fall in profitability.
Major Funding Cost:
Funding costs could continue increasing, as international reference rates are pushing up and local governments incraese their domestic funding. Regulatory provisions, which increase liquidity requirements in El Salvador and Honduras will also play a part as well as the mitigation of currency exchange risks in Costa Rica. Up to June 2013, five of the banking systems recorded year on year increases in the cost of their interest-bearing liabilities, of between 13 and 112 basis points. Nicaragua, El Salvador and Panama recorded the lowest funding costs.
Source: Fitch Ratings Centroamerica