Fitch believes local banks are well positioned against macroeconomic risk

According to ratings firm Fitch Ratings, the numbers and financial results of leading local banks put them in a positive position amid an environment of greater uncertainty and macroeconomic risk, with the main characters tightening fiscal policies and the resulting domestic political uncertainty. from the 2022 elections.

“Operating profit, net income and capital levels were higher than anticipated. Fitchand asset and loan growth surpassed pre-pandemic levels in 2019. Despite the decrease in loan impairment fees, loan impairments fell more than expected, resulting in improved coverage of impaired loans. The five largest banks collectively account for about two-thirds of the Colombian system’s assets, with the top three banks diversifying geographically, the document said.

However, Fitch expects profitability to be moderate but relatively stable as margins, lower impairment fees and higher fee income offset possible slight deterioration in asset quality. The financing structures of the largest banks will continue to be based on stable and low-cost customer deposits, which will support the return of banks.

Additionally, higher interest rates could be positive for loans from major commercial banks as part of a sustainable economic recovery. In fact, the firm raised its forecast for Colombia’s real GDP growth for this year from 3.9% to 5.2% after the economy’s good performance in the fourth quarter of last year.

Another driving factor is capitalization, which remained adequate for the five largest banks with a median common-tier capitalization of 11.5% last year, up from pre-pandemic 7.7% in 2019. “Colombian banks are expected to meet the full-load phase of Basel III capital requirements by 2024 and lag behind the progress of other major regional peers.” signature stands out.

Fitch expects the war in Ukraine to have a small to moderate impact on the Colombian banking system. Besides post-election policy adjustments, economic growth and credit growth will be affected by external factors, including inflation and rising oil prices, which could lead to broader macroeconomic uncertainty and increase high unemployment and underemployment.

Banks may be adversely affected by secondary shocks from low GDP growth, sustained energy price inflation and prolonged supply chain disruptions that can create challenging conditions. However, as a net oil exporter, Colombia’s fiscal and external balances could benefit by offsetting some pressure on GDP growth.

Despite the rising interest rate environment, the improving economic environment should continue to support the growth in the banking sector. “If rates rise in a scenario of rapid inflation and monetary pressures, an interest rate shock could raise credit costs, put pressure on bank assets and derail the economic recovery.”

Source: Lare Publica

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