Global banks will be protected from rising loan defaults in 2023 by rising interest rates and strengthening reserves, Moody’s analyzes. According to the rating agency, the outlook for the sector remains stable and banks will report strong profits.
In Latin America, the forecast is for continued growth in interest rates and a decline in structural reforms, which could harm investor confidence.
“The increase in interest margins will allow the continued generation of capital that is already strong, while liquidity and funding will remain robust, even if adverse economic conditions in much of the world cause loan performance to deteriorate”, he argues. Edoardo Calandro, Senior Vice President Credit Director at Moody’s.
Latin America
According to the risk agency, the demand for credit should weaken and, together with interest rates, reduce the benefit for banks’ margins. “Latin American countries, including Chile and Brazil, will probably start cutting interest rates at the end of the first half of 2023, as inflationary pressures decrease”, he analyzes.
Government changes in Chile, Colombia, Mexico, Peru and Brazil pose uncertainty for the region in the coming year. In Brazil, Moody’s believes that the new government should put pressure on the financial fundamentals of public banks in the medium term. Uruguay and Peru, on the other hand, present additional risks due to the high use of the dollar.
Inflation should continue to overwhelm families’ debt payment capacity in 2023, increasing asset risks. Strict underwriting standards and high levels of bank provisioning should soften the impact on loan performance.
In Argentina and Paraguay, although banks lend extensively to agribusiness, well-diversified loan portfolios mitigate climate risks. In Latin America overall, direct lending to sectors vulnerable to climate change is low, at around three-quarters of financial institutions in the region, according to Moody’s.
As for overseas business, low reliance on international capital markets should limit the impact of global volatility on Latin American banks, while “heightened domestic liquidity will help banks manage tight financial conditions.”
Source: CNN Brasil
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