SAN SALVADOR, El Salvador--(BUSINESS WIRE)--As GDP in Central America stabilizes at lower rates, Fitch Ratings expects loan growth for most countries in the region to slow in the latter half of 2015.
So far this year, retail loans in the region have gradually increased their share as banks seek wider margins and greater diversification. However, corporate lending continues to be the main driver of portfolio expansion.
'El Salvador and the Dominican Republic are leading the way in the retail segment, with consumer loans from those countries accounting for 35% and 20% of their respective system's total loans, respectively,' said Larisa Arteaga, Director of Financial Institutions.
Fitch Ratings believes banks across the region are well positioned to absorb the increase in credit costs that come with an expanded retail loan segment. Regulatory requirements for loan loss provision ensure full coverage of non-performing loans.
However asset quality, income and unemployment, and competition are factors to watch.
'As Central American banks wade further into the consumer loan segment, non-performing loans (NPLs) may see an uptick. This could be exacerbated if unforeseen economic deterioration causes unemployment or indebtedness to rise faster than incomes,' said Marcela Galicia, Director of Financial Institutions. 'Bank profitability may also be tested as competition weighs on pricing and lending terms.'
Fitch expects the region's largest banks may benefit from diversified loans and wider margins. Negative rating actions are more likely for small banks with higher risk appetite and less financial flexibility.
The full report, 'Loan Growth Prospects Dashboard 1Q15: Central America,' is available at www.fitchratings.com
Additional information is available on www.fitchratings.com.
Loan Growth Prospects Dashboard -- 1Q15
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868798
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