Moody’s: Additional reserves due to the pandemic reduce profitability of Latin American banks
According to the agency, the largest banks in Brazil, Chile, Colombia, Mexico and Peru experienced a reduction in the net profit of entities of up to 20 basis points
The creation of additional reserves due to the coronavirus pandemic and macroeconomic forecasts reduced the profitability of financial entities in Latin America, according to a report prepared by the rating agency Moody’s.
The text indicates that the results of the largest banks in Brazil, Chile, Colombia, Mexico and Peru experienced similar trajectories, given the provisions contemplated before the spread of the viral outbreak.
These reserves implied a reduction in the entities’ net profit of up to 20 basis points, according to the agency, although the decrease in profits was partially offset by the benefits reported from the sale of financial products and the efficiency of operating costs.
On the other hand, net interest margins also fell in line with the economic situation towards lower risk portfolios. On the other hand, profits from commissions fell in most cases, in line with lower business volumes.
Moody’s adds that although the impacts on the quality of banks’ assets are not yet known, the deterioration will be observed when the grace periods granted to users expire, since although the deferral of payments gave “breathing space” to debtors As said deferrals expire, the quality of the assets will be disclosed.
Likewise, the text warns that a prolongation of the containment measures will weigh on the economic recovery, which is slow in itself, and the reserves could be insufficient given the expected deterioration. However, asset quality has benefited from the growth towards the granting of lower risk corporate and mortgage loans.
The firm indicates that although Latin American regulators have not prohibited dividend payments, banks in general have decreased such payments in order to prepare for the effects of the pandemic.
Finally, deposits have grown more than loans during the quarter, thus favoring greater retention of liquid assets, while deposit financing increased in line with the limited business activity in general.
Source: dpa
