While country-specific trends will diverge, Latin American economies —in general— will continue to recover from their 2016-17 lows, although GDP growth levels will be lower than historical trends, Moody's Investors Service has forecasted.
Credit conditions for Latin American sovereigns and sub-sovereigns in 2019 will be determined by economic growth performance and by the policy path that the region's new and incumbent administrations adopt.
Within this framework,
cyclical recoveries in Chile (A1 stable), Colombia (Baa2 negative), and Peru (A3 stable) will continue but to differing degrees.
Steady economic growth supports stable outlook for banks, mutual funds, and insurers
Stable economic growth will help support the
operating environment for banks throughout Latin America, keeping problem loans at bay in most countries.
"Public policies in the region largely support
healthy bank fundamentals, while generally high-interest rates and low-cost deposit funding will fuel ample profitability and adequate capital," Moody's expressed.
"On average, the nonperforming loans (NPL) ratio will hover at a moderate 3% and return on assets will remain ample by global standards at around 1.5%," it added.
Furthermore,
banks in Peru will continue to post the highest profit in the region and asset quality will stabilize following some recent deterioration. Earnings will be bolstered by strong cost controls and digitalization efforts, as well as robust NIMs.
Credit conditions will remain stable overall in 2019
"
We expect stable credit conditions for non-financial companies in most of Latin America's biggest economies in 2019 amid modest economic expansion in Brazil and Mexico, but credit conditions will be negative for business in Argentina," the credit rating agency said.
Other Latin American countries such as Peru, Chile, and Colombia are all set to
resume growth in 2019, despite residual political uncertainty.
Corporate credit quality has been generally improving in the past few years, and companies have strengthened market positions, brand recognition, and geographic
diversification, while improving financial policies and reducing foreign exchange and refinancing risk.
Editor's note: Based on information provided by Moody's.