Moody's said it has an overall stable outlook on Latin American banks in 2020 on the back of stable asset quality and sound funding profiles.
For banks in the region, creditworthiness will hinge on stable capital, strong deposit-based funding profiles and adequate liquidity buffers, the rating agency said. Stability among banks will endure despite the pressure posed by low interest rates on margins and amid heightened competition given the rise of financial technology companies and digital players.
On the other hand, banks still face risks from the likelihood of further economic growth slowdown and policy changes in the region, which would entail weaker operating conditions and an erosion in asset risk, Moody's said. The scenario would result in reduced profitability and dampened capitalization, although the rating agency believes banks currently are well reserved and maintain solid earnings generation.
Moody's expects traditional banks to hold on to their dominant market position despite rising competition from fintechs, which will focus more on the unbanked population. However, new digital players' participation in the payment segment will constrain banks' fee income, the rating agency said.
Meanwhile, stable asset quality among the region's insurers should support their credit profiles despite low economic growth taking a toll on expansion. Specifically, lower global interest rates and aging populations will weigh on life and annuity insurers, Moody's noted.
Despite an overall stable outlook on the region, Argentina continues to be an outlier as banks and insurers face risks rising from economic volatility and recession.
Overall, Moody's said it has a negative outlook on emerging market banks and a stable one on insurers, citing slow growth and risks from political and trade volatilities. "Slower economic activity is a common threat throughout the regions, which would lead to a more challenging business climate, affecting banks' business generation and asset quality," the rating agency said.