The stable sector outlook for Latin American banks in 2019 reflects expectations for sustained modest growth in most countries.
"However,
economic growth is expected to remain uneven, with risks to the downside given the confluence of external shocks, coupled with specific economic or political risks in selected countries," Fitch Ratings expressed.
On the other hand, recessions in Argentina and Venezuela will likely continue into next year, with recent downward revisions to Brazil and Mexico's growth forecasts.
Likewise, a stalling global economy due to rising protectionism and/or increased volatility in international markets could lead to weaker than
expected economic performance for Latin American banks.
"This could negatively affect Latin American economies through lower external demand and pressures on commodity prices. Lower external demand could translate into negative implications for lending growth, asset quality, and profitability metrics," Fitch indicated.
It should be noted almost 68% of Fitch-rated banks in Latin America have Stable Rating Outlooks, with most other Rating Outlooks either Negative on Rating Watch Negative or have no Rating Outlook.
Banks are rarely rated above their
respective sovereign, with rating actions on for banks mirroring any negative sovereign rating actions. Most of the Negative Rating Outlooks are related to sovereign rating actions in Argentina, Costa Rica, Mexico, and Uruguay instead of a marked deterioration in financial performance.