Financial Services Advisor

Theresa Paiz Fredel, senior director for Latin America Financial Institutions at Fitch Ratings in New York: “As inflation pressures materialize in some Latin American countries due to higher commodity prices, faster-than-expected economic recoveries and base effects, pressure to tighten monetary policy has begun, with Brazil, Mexico and more recently Chile already hiking policy rates. Higher interest rates in Latin America generally have a positive impact on net interest margins as commercial banks across the region remain predominantly deposit-funded, of which a material portion of these deposits are nonremunerated or low cost. The net effect on bank credit metrics will depend on the extent that higher rates contribute to deterioration of asset quality. If gradual rate increases occur along with economic and wage growth, then this could underpin higher credit growth and offset risks to borrowers’ repayment capacity, thus sustaining…”