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Ecuador's modest economic recovery buoys banks' performance, Fitch says

Ecuador's modest economic recovery has benefited the country's largest banks through a positive trend in their asset quality, Fitch Ratings said.

In a Dec. 21 report, Fitch said the economic expansion has boosted borrowers' ability to pay and led to the widening of banks' loan portfolios and exploration of riskier sectors. A significant rise in restructured loans will cause erosion in loan quality over the near term, which could be mitigated by minimizing loan growth, the rating agency added.

Due to these combined factors, banks' financial performance will recover modestly in 2018, Fitch noted. In addition, the rating agency expects banks' capitalization to remain stable and their liquidity position to continue to be better than banks operating in similarly rated countries.

The operating environment in Ecuador highly influences the creditworthiness of its banks due to the impact of the government's macroeconomic and regulatory policies on their performance, the rating agency said.

Despite a higher degree of regulatory intervention on Ecuadorian banks, ensuing risks have eased over the near term as the country's new government sets its sights on boosting bank lending while reversing the ban on fees and commissions for some banking services, Fitch Director Larisa Arteaga said in a statement.