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Moody's changes banking system outlooks to stable in Argentina, Paraguay and Panama; outlooks remain stable in Uruguay and negative in Colombia, Central America and the Caribbean

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Research Announcement:

Moody's changes banking system outlooks

to stable in Argentina, Paraguay and Panama; outlooks remain stable in

Uruguay and negative in Colombia, Central America and the Caribbean

Buenos Aires City, April 15, 2021 --

» Outlook change to stable from negative was prompted by improving operating conditions in

Paraguay and Panama, and an expectation of supportive bank fundamentals in Argentina

» Unchanged stable outlook for Uruguay, reflecting recovering profitability and high reserves and

capital; negative outlook maintained for Colombia, Central America and the Caribbean, reflecting

linkages between the creditworthiness of the government and banks

Moody's Investors Service has changed its outlook on the Paraguay and Panama banking systems

to stable from negative in light of stable-to-improving operating environments over the next 12-18

months. The outlook of Argentina’s banking system was also changed to stable from negative driven

by banks’ relatively strong fundamentals, despite increasingly challenging operating conditions. At

the same time, it has maintained its stable outlook on Uruguay and negative outlook on Colombia,

Central America and the Caribbean.
“The outlook changes to stable from negative for the Paraguayan and Panamanian banking systems

follow Moody’s expectation of recovering economies that will support operating environments

and the banking business in 2021-22,” says Marcelo De Gruttola, a Moody’s Vice President.” In

Argentina, banks creditworthiness will likely remain stable in the outlook horizon, although downside

risks arise from persistent macroeconomic imbalances. The stable outlook for Uruguay highlights

the benefit that a recovering economy in 2021-2022 will have on asset quality and profitability of

local banks, while the negative outlook for Colombia, Central America and the Caribbean reflects

deteriorating government support due to challenging fiscal conditions, coupled with still significant

asset risk pressures.”
In Argentina, although banks remain exposed to challenging operating conditions, their

creditworthiness will likely remain stable over the next 12-18 months. Banks' limited credit growth in

the last three years, coupled with the increase in loan loss reserves, will partially mitigate the impact

of higher delinquencies in 2021 as relief and forbearance measures come to an end. Moody’s adds

that banks’ local and foreign currency funding remain exposed to policy changes and shifts in market

confidence.
In Paraguay, banks' focus on agricultural lending, high commodity prices and the expected

rebound in economic growth will combine to improve business conditions and promote loan growth,

prompting a stable outlook. For 2021, Moody’s expects asset risk to be high and profitability and

capitalization to be stable. Deposit dynamics remain supportive, liquidity is high and government

support assumptions are unchanged.
The Panamanian banking system's relatively high capitalization levels, stable domestic funding,

highly liquid assets, all combined with a recovering economy, support Moody’s stable outlook.

Still, the rating agency notes its expectation of an increase in problem loans during the second

half of 2021 and limited profitability due to lower business volumes in general and further loan loss

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provisions. Regulators have helped banks during the pandemic, but the lack of a central bank limits

the government’s capacity to provide support.
In Uruguay, the stable outlook reflects the benefit that a recovering economy in 2021-2022 will have

on asset quality and profitability of local banks, despite high inflation and unemployment. Moody’s

continues to assess the willingness of government support for the two state-controlled banks as

high. However, the rating agency continues to expect that support would only be forthcoming to

government-backed institutions because of the high level of dollarization in the country, which limits

the central bank's role as a lender of last resort.
In Colombia, the negative outlook reflects asset risk pressures and the linkages between the

creditworthiness of the government and banks, in light of weakening government support. Moody’s

expects asset risk to materialize in 2021, but high loan loss reserves built throughout 2020 will

partially offset the impact. Funding and liquidity will remain supportive of the banking system's

creditworthiness, while capital will likely stabilize as profitability gradually recovers after the hit in

2020.
The negative outlook on the banking systems in Central America and the Caribbean considers

deteriorating government support and Moody’s expectation that banks' nonperforming loans will rise

in the region in the next 12 months. Regional economies will recover, but growth will be slower than

South American peers. Banks' profitability will benefit from stronger business volume, but earnings

origination will likely be capped by the persistently high volume of loan loss provisions, resulting in

more modest growth than before the pandemic.
To see the complete banking sector outlook reports, click the weblink for each country:
Argentina:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1278022

Paraguay:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276989

Panama:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276124

Uruguay:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277971

Colombia:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277786

Central America and the Caribbean:

http://www.moodys.com/researchdocumentcontentpage.aspx?

docid=PBC_1278121

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global

press information hotlines: New York +1-212-553-0376 , London +44-20-7772-5456 , Tokyo

+813-5408-4110 , Hong Kong +852-3758-1350 , Sydney +61-2-9270-8141 , Mexico City

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This publication does not announce a credit rating action. For any credit ratings referenced in this

publication, please see the ratings tab on the issuer/entity page on

www.moodys.com

for the most

updated credit rating action information and rating history.
Marcelo De Gruttola

VP-Senior Analyst

Financial Institutions Group

JOURNALISTS: 1 800 666 3506

Client Service: 1 212 553 1653

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M. Celina Vansetti

MD-Banking

Financial Institutions Group

Moody's Investors Service, Inc.

JOURNALISTS: 1 800 666 3506

Client Service: 1 212 553 1653
Releasing Office:

Moody's Latin America ACR

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Argentina

JOURNALISTS: 1 800 666 3506

Client Service: 1 212 553 1653

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