Financial crisis: Moody's ruled out impact on Latin American banks

In the midst of the financial crisis that keeps markets alert, Moody’s assured in a new report that the contagion effect of the collapse of US banks will be “limited.” For what is this?

In the midst of the financial crisis that keeps markets alert, Moody’s assured in a new report that the contagion effect of the collapse of US banks will be “limited” for banks in Latin America.

This is basically due to the fact that financial institutions in the region have limited direct exposure to affected banks in the United States, strict regulation and ample liquidity with stable deposits.

“Most of the banking systems in Latin America are concentrated in large, solid and highly diversified banks. Consequently, the concentration by segment towards a single industry is relatively limited, which helps to protect the banking systems in the region”, says Marianna Waltz, Managing Director of Moody’s Investors Service. “In addition to strict market risk regulation in Latin America, banks in the region have frequently faced prolonged periods of high interest rates and inflation, which has helped their management teams build strong frameworks to control risks. market”, adds the document.

The report also highlights that the ratio of liquid assets to tangible assets for banks rated by Moody’s in the region was 32.2% according to the latest available data.resulting in a more representative volume of liquid assets recorded at fair value, which could lead to smaller haircuts in their market value if a sale of these is needed to pay depositors.

Also, 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 running out of cash. In addition, the limited sophistication of local financial markets and generally high interest rates have also supported the stability of deposits as a source of financing.

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 banking affiliates in the USHowever, the risks for these banks are relatively contained given the operational focus on small transactions.

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