Latin American loan growth will slow in 2015 due to slow economic growth, according to a Fitch Ratings report.
"The loan growth deceleration is due to a challenging economic environment in Latin America. Weak economic conditions in the developed world, together with China's growth slowdown, have affected exports and foreign investment. In addition, some countries have experienced varying degrees of government intervention that have also affected growth," said Marcela Galicia, Director Financial Institutions.
Fitch estimates that loan growth elasticity has declined. The average loan growth-to-local currency GDP growth ratio in Latin America is expected to decrease to approximately 1.4x in 2015, from 1.8x in 2013 and 1.7x in 2014. The reduction will be driven by lower loan growth in the corporate sector.
Fitch expects an overall increase in nonperforming loan (NPL) ratios. However, credit quality will remain adequate in 2015. Reserve coverage is expected to remain well above 100% of NPLs across the region.
Loan quality at Brazilian banks will continue to deteriorate in 2015, mainly driven by public sector banks. But NPL ratios will remain manageable in a scenario of sluggish economic growth and limited changes in the unemployment rate.
In Peru, loan growth will decelerate in 2015 due to the economic slowdown of 2014 and the efforts of the central bank to curb unhealthy credit expansion. While the seasoning of loan portfolios will lead to a slight increase in past-due loans and reduce reserve coverage, credit quality metrics will remain good.
Fitch expects a gradual stabilization of Mexican loan quality metrics in 2015. However, this scenario is heavily reliant on the expectation of a material rebound in economic dynamism.
In Chile, Fitch expects moderate pressure on loan quality, although the impact should not be significant as banks in general have been proactively taking measures to contain the deterioration.
For Colombia, the seasoning of previous fast loan growth and the burden of the recently acquired Central America operations will pressure NPLs on a consolidated basis, but these ratios will remain stronger than the Emerging Market (EM) median.
For more information, a special report titled "2015 Outlook: Latin America Loan Quality Trends" is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2015 Outlook: Latin America Loan Quality Trends (Sound Loss Absorption Capacity Eases Loan Quality Pressures)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=836468
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