The jolt to global markets, which originated with the fall of regional bank Silicon Valley Bank last Friday, will have a limited impact in the Latin American banking sector, according to the risk assessment agency Moody’swhich highlighted how the financial institutions of the continent have “a strict regulation and ample liquidity with stable deposits.
The XLF index, which measures the performance of the US banking sector, has lost more than 13% in the last month, in a context of nervousness due to the rapid hike in interest rates by the Federal Reserve in the face of inflation other than killing.
although the “risk of contagion” This is what worries global investors the most, who take the 2008 financial crisis as a precedent, for Moody’s in the case of Latin American banks “will be limited”
“Most of the banking systems in Latin America are concentrated in large, solid and highly diversified banks. As a result, segment concentration in one sector is relatively limited, which helps protect the region’s banking systems,” said Marianna Waltz, chief executive officer of Moody’s Investors Service. In Argentina, for example, 76% of deposits are in large banks.
“In addition to the stringent regulation of market risk in Latin America, banks in the region have also faced often prolonged periods of high interest rates and inflation, which has helped their management teams build strong structures to control market risks,” he adds.
The report also highlights that the liquid-to-tangible-asset ratio for Moody’s-rated banks in the region was 32.2%, according to the latest available data, which translates into a more representative volume of liquid assets reported at a value reasonable, which could lead to minor reductions in its market value whether a sale of these is needed to pay off depositors.
Furthermore, according to the report, banks have constant access to deposits as a source of funding, as they rely on local institutional markets, rather than international ones, which reduces their exposure to liquidity depletion.
In addition to limited sophistication local financial markets and high interest rates in general have also supported the stability of deposits as a source of funding.
It is worth mentioning that only two financial institutions in Latin America, Banco Bradesco of Brazil and Banco de Crédito e Inversiones of Chile, have bank branches in the United States, however the risks for these banks are relatively low given their operational focus on small transactions.
Source: Clarin
