Good feelings for the credits in 2024

Although a credit slowdown is expected, Central America will continue to benefit from economic momentum in the United States.

Written by Pablo Balcaceres –

Overall for Central America, credit demand has been favored by a better business environment in 2023, a trend expected to continue throughout this year.

We have seen greater consumer confidence as well as a business climate that appears positive or stable.; “This has also contributed to increased demand for credit,” says Susana Almeida, financial institutions group analyst at Moody’s Investors Service.

Almeida points out that conditions are right for credit to continue to grow rapidly, but with a slowdown compared to last year. From a credit advance of 12% in 2023, Moody’s expects this year a performance of 9% to 10%, and the dynamism of loans will continue largely due to the wide margin of opportunity that banks have to enhance financial inclusion.

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“Let’s remember that their financial penetration is very small, so the margin for banks to continue growing is very wide,” he explains.

For this part, Alfredo Calvo, Head of Financial Institutions Ratings at S&P Global RatingsHe points out that a large part of the boom in 2023 is due to the behavior of the US economy, which ended the year stronger, despite expectations of a contraction. This year, this positive effect will continue.

Credit outlook

In this context, what’s next for banking in Central America? S&P Global expects a moderation in the pace of credit expansion, within the framework of a moderation in global economic growth.

“This will spread even to Central America, so we think banks will be cautious in taking risks,” Calvo predicts.

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According to countries, Standard & Poor’s Global expects credit growth of 10% for Honduras, which leads the region, and more moderately in El Salvador, around 5%, 3% for Panama, and 2% for Costa Rica.

Geopolitical shifts cannot be ruled out either, as happened to Guatemala at the end of 2023, with the political crisis that the country witnessed with the inauguration of President Bernardo Arevalo as president.

At that time, this affected the banking sector. “That has slowed demand a little bit and created some hesitation on the consumer side; “Right now, we’ve already seen a recovery, a recovery on the household level and the business side.”

Good level of profitability

As for profits, in 2024 they will remain “adequate”, supported by healthy asset quality. Indicators such as return on assets (ROA) are exceeding pre-pandemic levels.

For example, Guatemala achieved a return on assets of 1.7% in 2023, which is higher than historical levels of 1.2% or 1.3% before the Covid-19 crisis.

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“Yes, we expect pressures on profitability through 2024, but given the context of the numbers, it seems to me that they are manageable for some economies in particular,” Sotomayor forecasts.

Calvo says that achieving these returns, linked to healthy levels of asset quality, reflects the application of good credit creation standards.

“Banks have grown on these metrics, and it will help them mitigate risks this year.”

Aileen Morales

"Beer nerd. Food fanatic. Alcohol scholar. Tv practitioner. Writer. Troublemaker. Falls down a lot."

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