Latin banks, less exposed to limited financial conditions

Moody’s Investors Service notes in a new report that Latin American banks is it so less exposed to more limited financial conditions, especially since their dependence on international capital markets is low, they maintain high liquidity and are largely financed by deposits and local capital markets.

(See: Consumer credit options in the country and their usefulness).

However, it ensures that smaller financial institutions will continue to face rising financial costs, which will limit their growth and a further increase in margins.

“Domestic markets are large and remain open in most countries, with strong demand for fixed income. However, the terms are shorter than in international markets and the cost of capital is higher, which poses liquidity risks for smaller banks and financial institutions that depend on institutional investors.”, states Ceres Lisboa, Associate Managing Director of Moody’s.

(See: Why Credit Cards Have Different Colors.)

“External financing represented less than 8% of total bank funding in the first quarter of 2022, which will help offset the continued financial tightening abroad“, Add.

Moody’s also mentions that banks in the region will face market volatility thanks to their liquidity reserves historically strong assets and consistent access to core business deposits and correspondent banking lines of credit.

However, the increase in interest rates will affect the availability of funds in the market and will restrict margins.

(See: Recommendations to build a good credit history).

Medium and small banks with debt maturities in 2022 have sufficient cash liquidity to pay their obligations and could finance part of their refinancing needs through local markets if necessary.

Moody’s report also notes that highly leveraged non-bank finance companies will need to adjust their business plans in 2022 and 2023 under stricter refinancing conditions.

(See: The usury rate has risen 946 points during the last year).

These companies will likely adjust their growth plans and new loan origination to preserve liquidity capacity as they seek to refinance high debt balances. This could result more costly and difficult in a context of lower tolerance to risk by institutional investors, especially those with debt maturities in 2022 and 2023.

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