The largest banks in Argentina, Brazil and Mexico are well-positioned to withstand slower economic growth in the region, S&P Global Ratings analysts pondered during a sector-focused webcast.
In Brazil, where GDP forecasts have more than halved from over 2.50% to 1.13%, profitability of major banks is likely to remain "resilient" in 2019, since they hold "the highest share of non-interest income across LatAm," Financial Services Director Cynthia Cohen Freue said, with roughly 50% of revenue stemming from fees, insurance and asset management businesses.
However, she noted that "weakened investor confidence" has effectively impacted on credit demand, thus lowering nominal credit growth expectations for the current year from 10% to a range of between 6% and 8%. Inflation in Brazil is expected at about 4.0%.
As for Argentina, she said a somewhat "conservative approach" from institutions as well as overall low banking penetration — roughly 15% of GDP — has left banks' profitability relatively safeguarded from a much-deteriorated economy, with sky-high interest rates and stubborn inflation.
Banks "will be able to overcome the challenges without major problems," since the liquidity shift toward high rates paid by notes from Banco Central de la República Argentina has contributed to "healthy net interest margins," Freue explained.
Finally, in relation to Mexico, whose debt profile outlook has been recently revised to negative, the banking sector's ability to brave "declining investor confidence" and "weaker economic prospects" depends on how long it will take for the economy to rebound, Director of Financial Services Alfredo Calvo said.
"Our main concern is that poor economic growth will persist and erode resilience ... a longer timeframe will cause operating performance and asset quality to suffer," he added.