Ecuador: Outlook
Thursday, March 11, 2010
Rating outlook
Stable Banking sector risk is likely to remain within the CCC band following the upgrade in December 2009. Although global conditions are improving, the local recovery will be mild, at best, and commercial banks will remain vulnerable to government intervention. The government's attempts to regulate banking charges, cap interest rates and tap liquidity for its funding needs in the system will continue to hurt bank profitability, and the rapid expansion of credit by public banks will lead to market distortions in the medium term, including crowding out of credit to the private sector. Also, the quality of the loan portfolio is set to remain weak as unemployment remains high and key industries in the private sector experience continued contractions.
Positive factors
- The banking sector's net foreign assets are positive (80% of total foreign assets compared with 13.8% for its CCC-rated peers), which should bolster its ability to repay and service foreign debt.
Negative factors
- The continued operating inefficiencies of the banking sector and the need to maintain a high level of liquidity under a dollarised economy will keep real market interest rates high, compounding pressures on debtors.
Labels: Economy and Business, Ecuador
posted @ 1:29 PM,
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