The outlook for Southern Cone Banks is mixed in 2013, with a stable outlook for Chile and Uruguay, while Argentina faces a negative outlook and the potential for downgrades, according to a new Fitch Ratings report.
'Fitch does not anticipate any rating changes for Chilean banks given low credit risk and adequate capitalization and liquidity ratios. No change is expected for banks in Uruguay unless the sovereign, Rating Outlook currently Positive, is upgraded,' said Santiago Gallo, Director, in Fitch's Latin America group.
'The ratings of many Argentine financial institutions were recently downgraded in line with the sovereign downgrade and any further downgrade of the latter will likely impact the ratings of many banks. In addition, the solid asset quality and profitability ratios of Argentine banks may deteriorate due to sluggish economic growth, higher inflation and greater macroeconomic volatility - creating the possibility of further downgrades in 2013,' said Maria Fernanda Lopez, Senior Director, in Fitch's Latin America group.
Chilean bank profitability will remain under pressure in 2013. While loan growth will continue to be strong, bank operating revenues will be undermined by stable interest and inflation rates and new regulations tending to limit some interest rates and fees and lower operating revenues. Additionally, the cost of funding is expected to increase due to greater competition among banks for structural deposits, particularly retail.
Fitch expects Uruguayan banks' profitability to remain moderate in the medium term. Increased profitability depends on private sector credit growth, and expanded recurring operating revenues via higher commissions and service fees to reduce vulnerability to exchange rate volatility and inflation adjustments.
The Argentine government has recently imposed a number of controls and new regulations that limit activities in the financial sector, which reduce banks' ability to adjust to changes in the operating environment.
Profitability may come under pressure due to the slowdown in credit growth, lower yields on government securities, higher inflation-related expenses, greater loan loss provisions and a possible hike in the cost of funding as a result of increased macroeconomic volatility.