SAN SALVADOR, El Salvador--(BUSINESS WIRE)--Link to Fitch Ratings' Report: 2015 Outlook: Central America and
Dominican Republic Banks
The banking sectors in Central America and the Dominican Republic maintain their stable outlooks, according to a new Fitch Ratings report. Only in Costa Rica has the agency revised the sector's outlook to stable from positive.
'Profitability and asset quality will remain stable in 2015, despite the expected slowdown in credit growth in most of the countries,' said Rene Medrano, Senior Director of Fitch's Financial Institutions Group.
Fitch anticipates moderate loan portfolio growth in Costa Rica in 2015, while profitability will remain low and with downside risks. High reliance on net interest margins (NIMs) and additional loan impairment charges due to regulatory changes requiring gradual increases in loan loss reserves- may constrain earnings. The agency does not expect improvements in income diversification or material earnings due to exchange rate gains, which were relevant in 2014.
In Panama, banks' performance will remain sound and stable, supported by a favorable economic environment. However, the economic slowdown will result in lower loan growth, below 10% according to Fitch's estimates. Lower credit growth is the result of sluggish growth in the trade sector. In 2015, retail loans will drive credit growth. The larger share of retail and residential mortgages in loan portfolios implies an incremental credit risk, particularly considering the banks' moderate loss absorption capacity.
Fitch anticipates improved performance of Dominican Republic banks, with a positive operating environment providing opportunities for growth. Retail and small and micro enterprises (SME) loans will be the main drivers of credit growth in 2015. High and resilient NIMs, controlled credit costs, and a higher loan share in more profitable segments will sustain the improvements in profitability.
Fitch anticipates that the loan portfolio will grow approximately 11% in 2015 in Guatemala. Banks' profitability will remain moderate although downside risks remain. The larger banks will remain dominant and will continue expanding regionally, while fierce competition will limit the smaller banks' long-term sustainability. The system's capitalization remains below the average of its peers in the region.
Nicaraguan banks will likely continue exhibiting their best performance of recent years. Loan quality will remain sound, while profitability should remain high and above regional averages due to a combination of high NIMs and low provision expenses. Fitch anticipates portfolio growth of over 20%, almost twice that of most Central American banking systems, spurred by a positive economic environment and low banking penetration.
In El Salvador, 2015 will be another year of slow growth. Although the entry of new players may increase the loan portfolio dynamic, it will not be enough to boost banks' performance. Average profitability should remain moderate to low. On the positive side, loan quality should stabilize at good levels, and Salvadoran bank capitalization should remain the highest in the region.
The loan portfolio of Honduran banks should continue growing at approximately 10%, driven by wholesale lending. Asset quality will remain unchanged and weaker than that of other Central American banking systems. Dollarized balance sheets will continue posing a potential credit risk. Profitability is expected to remain moderate, with a ROAA of approximately 1.4%.
Additional information is available at 'www.fitchratings.com'.