Central American loan growth expected to slow

Fitch Ratings on Tuesday said it expects loan growth for most countries in Central America to slow in the second half of 2015 as gross domestic product in the region stabilizes at lower rates.

Although retail loans in the region have steadily increased their share while banks seek wider margins and greater diversification, 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 percent and 20 percent of their respective system's total loans, respectively,” Director of Financial Institutions Larisa Arteaga said. 

Fitch Ratings said banks in the region are well-positioned to absorb the increase in credit costs that come with an expanded retail loan segment. Asset quality, income and unemployment, and competition are factors to watch as the retail segment expands, Fitch said.

“As Central American banks wade further into the consumer loan segment, non-performing loans may see an uptick,” Director of Financial Institutions Marcela Galicia said. “This could be exacerbated if unforeseen economic deterioration causes unemployment or indebtedness to rise faster than incomes. Bank profitability may also be tested as competition weighs on pricing and lending terms.”

The full report, "Loan Growth Prospects Dashboard 1Q15: Central America," is available at www.fitchratings.com

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