Moody’s has affirmed its rating for Latin American banks with a stable outlook, citing the rebound in economic activity.
Rising economic growth, combined with political stability, is likely to boost loan growth, stated the agency in a note to investors.
“Stable economic growth will help support the operating environment for Latin American banks, keeping problem loans at bay in most countries,” says Moody’s Vice President Felipe Carvallo.
“Contained credit costs, strong efficiency and higher loan growth will support profitability and capital. In addition, ample core deposit funding provides a strong base for loan growth and insulates banks from market volatility.”
According to its report, Brazilian economy is recovering quickly from years of slow growth and recession. However, Argentina will continue to suffer with high inflation and a shrinking GDP.
In addition, reliance on market and foreign currency funding will remain low, says the ratings agency.
“Rising GDP in the region will improve employment, corporate activity and internal demand, therefore, increasing demand for corporate and consumer loans,” the agency added.
Both Mexico and Brazil have elected new presidents this year. Investors are particularly positive about the political stability in Brazil. They are expecting the North American Free Trade Agreement (NAFTA) to help Mexico’s new president to put the economy in order.
Decreasing value for commodity, such as oil and minerals, has hit some economies, including Brazil. However, the region’s biggest economy is likely to grow 2.5% in 2018, up from a previous median forecast of 2.3%. Low interest rates and inflation are fueling spending.
Analysts say many countries in the region can accelerate economic growth if governments manage to tackle public debt and cut social spending.