A flurry of international debt sales by Latin American financial institutions in the first quarter is unlikely to reverse the trend of declining volumes in FIG issuance from the region, according to rating analysts and bankers.
A recent report from Moody’s predicts that, as GDP growth falls in the region (in its latest forecast the Institute of International Finance predicted growth would fall to 2.1% in 2014, down from 2.4% in 2013 because of a slowdown in Brazil and stagflation in Argentina and Venezuela) banks will likely need less external financing as loan portfolio growth slows.
Banks issued record international debt in 2012, but volumes have slumped since. Last year total volumes fell 26.4% and a rebound isn’t expected in a context of slow growth and well-capitalized banks. Even in Mexico – which has the rosiest expectations for loan portfolio growth – there is little or no need for banks to tap the markets. Volumes are unlikely to be boosted this year by Basle III-compliant transactions. Only Brazil and Mexico have the regulations in place to be able to issue such structures and banks will not need to replace existing current tier 1 and tier 2 transactions for several years – although some bankers expect deals to come sooner.
Franklin Santarelli, analyst in the financial institutions group at Fitch, says he undertook a study that showed that, assuming loan portfolio growth of 10% and only a small deterioration in the industry’s aggregate liquidity position, Mexican banks wouldn’t need to access fresh capital for three to four years.
“Refinancing needs from LatAm banks this year are very low,” says Santarelli. “Any kind of issuance will be more driven by seizing opportunities rather than filling a need.” He expects a similar level of issuance in 2014 as last year, with a rebound unlikely as a result of either supply or demand: “There is still some negative investor sentiment about EM and until that changes there won’t be good enough market conditions to encourage the banks to come – there isn’t a refinancing pressure that necessitates them to do deals.”
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