TEXT-S&P report on credit expansion in Mexico, Chile and Panama
Sept 11 - The recession of 2008-2009 had a sudden impact on credit growth in Chile, Mexico, and Panama, said Standard & Poor's Ratings Services in a published report titled "Will Credit Expansion Continue In Mexico, Chile, And Panama Despite The Challenges Ahead?". Borrowing and lending fell sharply in all three countries, turning what had been a credit expansion into a credit contraction in 2009. Over the past 30 months, however, borrowing and lending have bounced back in Chile, Mexico, and Panama, with credit expansion outpacing robust GDP growth. Now, though, global growth is turning down, thanks to a recession in Europe, a slowdown in China, and a tepid U.S. economy. This raises the question: As GDP growth slows in Chile, Mexico, and Panama, how well will their banking systems cope? "In our view, they won't suffer much strain--assuming that these countries avoid a recession," said Standard & Poor's credit analyst Jose M Perez-Gorozpe. "The banking systems of Chile, Mexico, and Panama exhibited what we view as satisfactory resilience during the 2008-2009 crisis." Moreover, by Standard & Poor's measures banks in all three countries have maintained conservative underwriting standards during the recovery. The banking systems of Chile, Mexico, and Panama currently have adequate financial performance, capitalization, and asset quality, in our view. And perhaps most important, credit expansion in Chile, Mexico, and Panama hasn't resulted in economic imbalances, such as housing price bubbles. Potentially, bank asset quality ratios could deteriorate slightly as economic growth slows. But we don't expect credit losses to be a burden for these banking systems over the next two years. In good part, that's because our base-case economic scenarios for Chile, Mexico, and Panama envision single-digit GDP growth and manageable inflation through 2013. We also think employment should remain stable in all three countries--even if they experience a mild economic slowdown over the next 18 months.
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