Moody’s outlook for the Uruguayan banking system is negative – iprofesional.com

Moody’s lowered the outlook of the banking system of Uruguay (Baa2 negative) to negative from stable. Based its decision on that credit risks will increase moderately, as the challenging economic conditions have equal impact for both consumers and enterprises in the country, and that profitability will fall

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However, levels of capital and liquidity remain more than adequate , said Moody’s in the report

<. strong> weaknesses broad agriculture of Uruguay, along with a low demand of its neighbors Argentina and Brazil, its main trading partners, and fall in investment private, have d ebilitado confidence of businesses and consumers.

“the weak economy boost delinquencies corporate loans, while rising unemployment levels will also lead to higher default rates for consumers, “said Moody’s analyst Alexandre Albuquerque said in a statement.

the ratio of NPLs rose to 3.1% in May 2016, from 2.1% in December of 2015. Moody’s projected to increase to 3.6% in the next 18 months .

inflation has also become a key challenge for banks. While families with wages linked to inflation currently benefiting from rising prices, workers who do not receive adjustments automatic wages have less money to spend.

Because consumers prioritize payments mortgages and services , the default of consumer loans will increase. In line with lower consumer demand, growth in revenue from local companies could also weaken, which can affect performance of corporate loans.

Along with increasing competition, slowing growth loans, driven by a slowing economy, exert a downward pressure on profitability. the capitalization also continue to deteriorate, although relatively remain strong against many regional peers.

despite the high level of dollarization of the banking system, however, the show of banks to the depreciation of the peso is limited, says the agency.

in general, banks only grant dollar loans to register income in foreign currency, and have no significant currency mismatches in their balance sheets. While the liquidity of the local currency is scarce, banks have substantial liquid assets denominated in US dollars.

In addition, banks have a low exposure to markets international capital since they are largely funded by deposits, and deposits of non-residents amounted to a relatively small proportion of the total funding portion.

Moody’s six banks in Uruguay, recorded 75% of total banking system deposits and almost 78% of total loans to May 2016. Four of these banks are foreign-owned and two are the state. Moody’s also rates an offshore bank and three finance companies in Uruguay.