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Fitch cautions retail-focused Chilean banks against pandemic risks

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Fitch cautions retail-focused Chilean banks against pandemic risks

Fitch Ratings said Chilean banks with high exposure to lending and credit cards, especially those linked to retail stores, are especially susceptible to the financial impact of the coronavirus outbreak, Diario Financiero reported, citing Abraham Martínez, the rating agency's director of banks for Latin America.

"They have all their business paralyzed and sales stopped, so obviously it will affect not only the sales flow, but also the volume of credit from these credit card-based banks," Martínez was quoted as saying. "In the second instance, we also observe some pressures regarding provisions."

Aside from the retail segment, banks also face significant risks from large companies, "particularly entities that have exposures to natural resources, transport, hotels, gambling or the non-food retail sector," the analyst said.

Martínez noted that Chilean banks' operating metrics remained stable in 2019, despite the social unrest and its economic impact.

In Mexico, newly authorized accounting rules that will allow banks to postpone clients' credit payments would temporarily offset the possible impact of the pandemic on loan delinquencies, capitalization and profitability, Alejandro Tapia, Fitch's senior director of financial institutions, said according to an El Economista report.

However, Tapia still expects the outbreak to impact the banking sector, with the extent of its effect depending on the severity of the pandemic and how long it will last.

"Fitch believes that the low loan portfolio growth expected for 2020 will have a high impact for all banks because they will put pressure on the generation of profits," Tapia said. "Although there is an opportunity for growth due to low bank penetration and facilities, we believe that the prudence of Mexican banks in stressful situations will have an effect on credit dynamics."

Fitch earlier said it continues to have negative outlooks on both Chile's and Mexico's banking sectors for 2020, due to risks associated with the spread of the coronavirus.