Live Webcast And Q&A: Will Pressure Increase On Latin American Banks In 2016? December 9 th, 2015

Transcription

1 Live Webcast And Q&A: Will Pressure Increase On Latin American Banks In 2016? December 9 th, 2015 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor s. Copyright 2013 by Standard & Poor s Financial Services LLC. All rights reserved.

2 Today s Speakers: Edgard Dias, Director Financial Services Ratings Sao Paulo Arturo Sanchez, Director Financial Services Ratings Mexico City Jose Perez-Gorozpe, Director Financial Services Ratings Mexico City Moderated By: Ivana Recalde, Director Financial Services Ratings Buenos Aires Sergio Garibian, Senior Director Analytical Manager Financial Services Ratings Sao Paulo

3 Argentina 2016 Outlook

4 Banking Industry Country Risk Assesment (BICRA ) Argentina BICRA Peers Score BICRA Economic Risk And Industry Risk Scores And Components (*) --Economic risk factors and descriptors-- --Industry risk factors and descriptors-- Country BICRA Group Economic resilience Economic imbalances Credit risk in the economy Economic risk Institutional framework Competitive dynamics Systemwide funding Industry risk Chile 3 High Low Intermediate 4 Low Intermediate Low 3 Peru 5 High Low Very High 6 Low Intermediate Intermediate 3 Mexico 4 High Very Low High 5 Intermediate Intermediate Low 3 Colombia 5 High Intermediate High 6 High Intermediate Intermediate 5 Brazil 5 Very High Intermediate Intermediate 6 Intermediate High Intermediate 5 Uruguay 6 Intermediate Intermediate High 5 High High Very High 7 Paraguay 8 Very High High Very High 8 Very High Very High High 8 Bolivia 8 Very High Intermediate Extremely High 8 Very High Very High Intermediate 7 Argentina 9 Extremely High High Very High 9 Very High High Very High 8 *Data as of Oct 6, BICRA -- Banking Industry Country Risk Assessment. Source: Standard & Poor's.

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6 Argentina Financial System (*) As of Sep Annualized

7 Brazil 2016 Outlook

8 Downgrade of Brazil s Ratings revised on Sep. 9, 2015 The political challenges Brazil faces have continued to mount, weighing on the government's ability and willingness to submit a 2016 budget to Congress consistent with the significant policy correction signaled during the first part of President Dilma Rousseff's second term. The government's 2016 budget proposal envisions yet another change to the primary fiscal target less than six weeks after the previous downward revision, which would mean three consecutive years of a primary deficit and net general debt continuing to rise if subsequent revenue or expenditure measures are not taken. We lowered the long-term foreign and local currency sovereign ratings on Brazil to 'BB+' and 'BBB-', respectively. We also lowered the transfer and convertibility assessment to 'BBB' from 'BBB+'. The negative outlook reflects what we believe is a greater than one in three likelihood of a further downgrade due to a further deterioration of Brazil's fiscal position, potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the president's cabinet, or due to greater economic turmoil than we currently expect.

9 Negative trend for BICRA 5 on Brazil revised on April 17, 2015 BICRA: Banking Industry Country Risk Assesment. Determines the 'anchor', i.e. the starting point for rating all banks; currently BBB- in Brazil. Considers a combination of Industry Risk and Economic Risk. It varies from 1(low risk) to 10 (high risk). Factors incorporated in each of these risks: Industry Risk: Quality, effectiveness and banking regulation history in the country; competitive dynamics among banks, and general funding conditions. Economic Risk: GDP per capita, macroeconomic policies flexibility, variations in prices of real estate assets and shares, "underwriting standards", political risk, external debt and current account balance.

10 Negative trend for BICRA 5 on Brazil revised on April 17, 2015 The negative trend for the BICRA score '5' on Brazil reflects negative pressures on the country's "Economic Risk", given its challenging political scenario, lower economic resilience, negative economic growth outlook, high levels of committed income and pressures on the banking system's asset quality. In this context, S&P revised its view of the Brazilian financial system from an "Expansionary Phase" to an Correction Phase", still with limited effects. The negative trend for the BICRA on Brazil affects mainly small- and medium-sized banks, with no impact on the ratings of the main Brazilian banks. However, we lowered the ratings of the main Brazilian banks following a similar rating action on the sovereign, resulting from what we viewed as a backtracking by Brazil from its commitment to its stated policies and from the various policy corrections underway.

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14 Outlook on Brazilian Banks in 2015 We expect growth of 8%-12% in the credit portfolio of the Brazilian financial system in 2015, representing yet another year of slowdown. The private banks should record a slight portfolio growth, while maintaining a conservative approach for credit origination, with a focus on corporate credit, payroll-deductible loans and fee income. The portfolio expansion of public banks remains uncertain, given recent announcements towards credit expansion from Banco do Brasil and Caixa. Although growth has been lower than previous years, public banks should continue being the main drivers for credit growth in Brazil. Asset quality pressured throughout the system, with a challenging scenario for the vehicle, small- and medium enterprises and consumer loan segments. The employment rate remains the main variable affecting the system's asset quality. As in 2014, the large private banks should deliver resilient profitability, while the public banks face major hurdles to maintain profitability. Higher interest rates and spreads help improve the financial intermediation margins of all banks in Brazil. Constant pursuit of efficiency gains, primarily based on use of Information Technology, and improved customer services.

15 Chile 2016 Outlook

16 Chile highlights Credit Growth We expect growth of the credit portfolio of the industry to continue to be influenced by feebler economic prospects with a projected GDP growth of 2.1% in 2015 and about 2.5% to 3% in Loan portfolio of the banking industry in Chile is expected to increase by 7% to 9% in 2015 about 9% to 10%. It is foreseen modest growth in the corporate segment (that accounts for 60% of total loan portfolio) and higher levels in mortgages (27% of loans) due to anticipations of acquisitions in the housing segment before the implementation of taxes.

17 Chile highlights- Credit quality Credit quality is estimated to deteriorate as a result of the impact in economic activity and potentially higher unemployment in the country. However, the deterioration is expected to occur from current healthy levels, with NPLs (90 days) of about 2% as of Oct and reserve coverage of 1.2x. We expect NPLs to go at levels not more than 2.5% in 2016.

18 Chile highlights- Profitability and follow ups We expect profitability in 2015 and 2016 to be at lower levels than 2014 that was positively impacted by higher inflation in Chile due to the banking system s long position in Unidad de Fomento (UF-indexed by inflation currency) and one time tax effects. We project Return on Assets (ROA) of about 1.1%-1.2% in 2015 and 2016, compared to 1.4 % in Factors to follow up: Financial regulators would send a draft of a new banking law to Congress, which would touch aspects on Basel II and III implementation, resolution regime, and the supervision of banks. Upon the law's passage, we will assess the impact of this law, especially as it relates to capital and government support.

19 Colombia 2016 Outlook

20 Colombia Financial System Highlights Credit has accelerated, despite economic slowdown. We expect double digit credit growth will continue, as financing for 4G projects is gradually reflected in bank s portfolio and economy recovers. 30% 25% 20% 15% 10% 5% 0% 5% F 2016F Credit Growth (Real Terms) GDP Real Growth

21 Colombia Financial System Highlights Asset Quality Remains Adequate and the System Has Solid Coverage Ratios. We expect asset quality indicators to remain stable. 3.0% 3.5x 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% F 2016F NPAs Credit Losses LLR/NPA (Right Axis) 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x

22 Mexico 2016 Outlook

23 Mexico Credit Growth % Mexico's Credit Growth YoY Commercial Banks 26% 21% 16% 11% 6% 1% Total Total Commercial Total Cosumer Total Mortgage

24 Commercial Banks Expected Growth 30% Mexico Credit Growth Commercial Banks 25% 20% 15% 10% 5% 0% 5% F 2016F 10% 15% 20% 25% Total Commercial Consumer Mortgage

25 Mexico Commercial Banks Asset Quality

26 Panama 2016 Outlook

27 Panama s Banking System In 2016 Loan growth will decelerate due to lower economic growth and a relative high banking penetration. Asset quality should remain on check given what we consider adequate underwriting and collection standards. Consequently, profitability should remain resilient, with return on average assets at around 1.6% in 2016, in line with other Latin American banking systems.

28 Panama s Banking System In 2016 The 2014 inclusion of Panama in Financial Action Task Force's (FATF) "grey list" remains a key challenge for the banking system. Delays in the implementation and adoption of Basel III framework remains a weakness. The absence of a lender of last resort will continue to provide uncertainties in 2016 about the government's ability and capacity to service the system's potential extraordinary funding needs in a timely fashion.

29 Peru 2016 Outlook

30 Peru s Banking System Outlook Economic risk for Peruvian banks increased in 2015 and we expect it to remain so next year. We expect loan growth to be 10%-12% in Although we forecasted credit losses to rise in 2015, we believe they will start to stabilize in Credit losses have been growing during the past three years primarily due to poorer credit quality among SME, microenterprise, and consumer loans. We expect to see some weakness in these loans in Consequently, we expect both NPAs and credit losses at 3.1% in 2016, respectively.

31 Peru s Banking System Outlook For the past two years, the system's overall profitability has been sound, but we expect it to be slightly impacted in 2016 by deteriorating asset quality that could result in increased provisions. Nonetheless, we expect ROAA to be at about 2%, which would be higher than those of regional peers, but it will certainly be lower than in previous years of more than 2%. We expect Peruvian banks' exposure to external funding to remain either unchanged or to slightly drop in 2015 and 2016 given the recent actions by the central bank to discourage foreign-currency lending.

32 Appendix

33 Ratings Distribution For Latin American Banks 50% 40% 30% 20% 10% 0% AAA AA A BBB BB B CCC D

34 Ratings Outlook For Latin American Banks CreditWatch Developing 1% CreditWatch Negative 5% Outlook Negative 32% Outlook Stable 62%

35 Panama GDP Growth vs Loan Growth 12% 10% 8% 6% 4% 2% 0% GDP Growth Loan Growth (secondary axis) e 2016-f 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

36 Panama s NPAs and Credit Losses 1.2% NPAs Credit Losses 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% e 2016-f

37 Panama s Profitability -- ROAA 1.8% 1.7% 1.6% 1.5% 1.4% 1.3% 1.2% 1.1% 1.0% e 2016-f

38 Thank You Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor s. Copyright 2013 by Standard & Poor s Financial Services LLC. All rights reserved.

39 Q&A Thank you for joining us. Visit our webpage at: Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor s. Copyright 2013 by Standard & Poor s Financial Services LLC. All rights reserved.

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