Moody’s upgrades banking outlook for Paraguay, Panama and Argentina

RIO DE JANEIRO, BRAZIL – The rating agency Moody’s has improved the outlook of the banking system of Paraguay, Panama and Argentina, by changing its rating from “negative” to “stable”, the entity informed on Thursday.

In Paraguay and Panama’s case, the improvement in their ratings is due to the “stable or improving operating environment for the next 12 to 18 months,” the agency said in a statement.

Paraguayan banks’ focus on loans to the agricultural sector, high commodity prices, and the expected recovery of economic growth “will improve business conditions and promote loan growth, leading to a stable outlook.

In Panama, the “relatively high” capitalization levels of its banking system, stable local funding, highly liquid assets on balance sheets and the recovery of its economy are the factors that “support” the change in its rating.

“However, the rating agency expects an increase in non-performing loans during the second half of 2021, as well as limited profitability due to lower overall business volumes and new provisions for credit losses,” Moody’s warned.

Regarding Argentina, the rating agency changed its outlook to stable from negative due to its “relatively solid” banking fundamentals.

In that sense, although the southern country’s banks “remain exposed to difficult operating conditions,” their credit quality is likely to “remain stable” in the next 12 to 18 months, according to Moody’s.

“The banks’ limited credit growth over the past three years, coupled with increased loan loss reserves, will partially mitigate the impact of higher NPLs in 2021 as financial relief measures and grace periods come to an end,” the company stressed in the statement.

OTHER RATINGS IN LATIN AMERICA

Moody’s also maintained unchanged its “stable” outlook for Uruguay, “reflecting a recovery in profitability,” as well as “high” levels of reserves and capital.

In fact, despite the country’s high inflation and unemployment rates, the stable outlook reflects the positive effects of the economic recovery on the quality of its assets and the profitability of its local banks.

The rating agency also did not change the “negative” outlook for Colombia, Central America and the Caribbean, demonstrating “the link between the credit quality of the government and the banks”.

Thus, Moody’s expects the deterioration in Colombian asset quality “to materialize in 2021”, although its high reserves for credit losses from the previous year “will partially offset the impact”.

Regarding the negative outlook for Central America and the Caribbean, Moody’s expects banks’ non-performing loans to grow in this region over the next 12 months.

“Bank profitability will benefit from higher business volumes, but earnings are likely to be constrained by the persistently high level of loan loss provisions, resulting in more moderate growth than before the pandemic,” the rating agency concluded.

Source: efe/dw/brb