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LatAm Financial Institutions Monitor Q2 2025: Adapting To Market Volatility And Economic Shifts

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Key Takeaways

  • Global financial institutions are facing increased market volatility, which heightens counterparty risk and could expose vulnerabilities across financial systems.
  • Escalating trade tensions may undermine business and consumer confidence, reducing corporate investment, credit demand, and potentially, banks' profits.
  • We expect Mexican banks to take cautious growth strategies due to uncertainties over U.S. tariffs. Credit expansion may slow, and asset quality could decline but remain manageable.
  • Brazil's persistently high interest rates will erode banks' asset quality metrics. Brazilian banks face challenges in implementing new regulatory measures, including a new methodology for determining provisions for credit losses.
  • Credit growth in Chile will likely remain low due to weak corporate demand and election uncertainty, putting pressure on margins and profitability.
  • Demand for credit in Colombia is recovering at a slow pace, leading to sluggish credit growth and a slower-than-anticipated recovery in asset quality.
  • Peru's complex political landscape is likely to persist, but conditions are gradually improving, supported by economic growth, decreasing inflation, and lower interest rates.

Global financial institutions are facing new macro-financial shocks due to escalating trade tensions, although they enter this challenging environment with solid credit fundamentals. S&P Global Ratings anticipates stability in ratings through 2025, despite various uncertainties. The primary risks include market volatility, economic downturns, and potential shifts in the global financial system's architecture.

Market volatility has increased counterparty risk, particularly for banks with trading operations. Sustained volatility could expose vulnerabilities in the financial system, leading to liquidity stress and potential asset fire sales. The economic impact of trade tensions may dampen business and consumer confidence, affecting corporate investment and credit demand, while banks may need to raise credit-loss provisions.

Additionally, the ongoing reshuffling of global trade could necessitate a redesign of financial regulations and stability mechanisms, which may increase risks and costs for globally active banks. The commitment of policymakers to existing global financial frameworks is uncertain, potentially complicating regulatory environments and increasing fragmentation.

While banks are equipped to handle short-term volatility, the long-term implications of trade tensions and regulatory changes could pose significant challenges, influencing their asset quality and operational strategies. Central bank's credit swap lines remain a crucial backstop for global financial stability, allowing banks to meet foreign-exchange needs during crises.

LatAm's economy will likely grow by just over 2% in the coming years, trailing behind other emerging markets. We adjusted GDP forecasts for Mexico downward due to the negative impact of U.S. tariffs, expecting a contraction and a slow recovery starting in 2026 with 1.7% growth. Argentina's GDP forecast improved to a 4.8% rebound in 2025, thanks to fiscal reforms and inflation reduction, despite risks from low foreign reserves.

Brazil's economy shows signs of slowing, and we project stable growth of 1.9% for 2025. We maintain growth forecast for Colombia at 1.7% for 2024 and 2.5% for 2025 due to weak investment recovery. For Chile and Peru, we keep 2025 GDP growth forecasts at 2.2% and 2.7%, driven by private investment, consumption recovery, and strong exports, particularly in copper.

Table 1

S&P Global Ratings GDP growth forecasts
2019 2020 2021 2022 2023 2024f 2025f 2026f 2027f
Argentina (2.0) (9.9) 10.4 5.3 (1.6) (1.7) 4.8 2.8 2.7
Brazil 1.2 (3.6) 5.1 3.1 3.2 2.9 1.9 2 2.1
Chile 0.6 (6.1) 11.3 2.2 0.5 2.6 2.2 2.3 2.4
Colombia 3.2 (7.2) 10.8 7.3 0.7 1.7 2.5 2.8 2.9
Mexico (0.4) (8.6) 6.3 3.7 3.3 1.2 0.2 1.7 2.2
Peru 2.2 (10.9) 13.4 2.8 (0.4) 3.3 2.7 2.7 2.9
f--Forecast.

In this context, Mexican banks will likely maintain prudent growth strategies based on conservative underwriting practices due to uncertainties surrounding the imposition of U.S. tariffs on imported goods from Mexico. Even though the U.S. government has delayed the implementation of tariffs, we can perceive a decline in investment and consumer sentiment. Consequently, we expect credit expansion to moderate this year, while asset quality metrics could slip but remain manageable. However, we expect Mexican banks to maintain strong capital metrics and sound margins, offsetting pressures on asset quality and profitability.

Chart 1

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Although excluded from our current base-case scenario, we believe that if the U.S.'s announced 25% tariffs on imports from Mexico take effect and stay in place for months or quarters, the Mexican economy could contract in 2025. In our view, if the 25% tariffs take effect and remain beyond the end of 2025, the impact on the Mexican economy and business environment would be significant, and demand for credit and insurance products would suffer as a result. In this scenario, we think banks would tighten their lending policies even further, focusing on high-quality borrowers and secured credit products.

A scenario of a weakening economy in 2025-2026 could lead to increased inflation and interest rates, as well as a deterioration of the labor markets and weaker local currencies. Consequently, banks may experience a rise in nonperforming assets, while insurers could face higher claims costs, denting their operating performance.

Chart 2

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We expect Brazil's persistently high interest rates to erode asset quality metrics. This impact may be mitigated by banks' conservative growth strategies and their focus on guaranteed, high-quality loans. We expect profitability to weaken due to intense competition for creditworthy borrowers and a focus on safer products, which will strain margins. Low credit growth will also squeeze the operating performance. Changes in provisioning calculations may further take a toll on the operating performance of banks most affected by these changes. However, we expect the banking system, particularly larger players, to remain resilient.

In 2025, financial institutions in Brazil will be required to implement new regulatory measures. These include adopting a new methodology for determining provisions for credit losses, implementing a revised calculation for operational risk in regulatory capital adequacy, and complying with significant modifications in tax accounting rules aiming to reduce deferred tax assets (DTAs). The objective of these changes is to strengthen the risk management practices of financial institutions and align them with international accounting standards. However, we believe that the implementation of these regulatory changes will not be without its challenges. Financial institutions will need to navigate through a complex web of new rules that may increase provisions and squeeze capital metrics.

Brazil's government created new rules to promote payroll deductible loans for private employees that eliminates the need for bilateral agreements between companies and financial institutions, replacing them with a centralized channel. This new product represents an opportunity for diversification and expansion of banks' portfolios, with the potential to attract new clients and promote cross-selling, as well as to enhance competitiveness in the product offering due to the absence of an interest-rate cap. However, there are uncertainties regarding the advantages, particularly concerning the execution of guarantees, default rates, and the operationalization of the product. Successful adoption will depend on factors such as profitability for banks, attractiveness to borrowers, the ability to operationalize guarantees quickly and securely, adequate credit quality, and client portability dynamics.

We anticipate that credit growth in Chile will remain low due to lower-than-expected demand from the corporate sector as the economy gradually recovers, compounded by uncertainties over the upcoming presidential election. Margins are likely to come under pressure as interest rates continue to decline, while asset quality is likely to remain stable as low credit growth offsets improvements in asset quality. Changes in provisioning calculations for consumer loans may dent the operating performance of some banks, although larger ones are likely to be less affected due to additional provisioning they raised during the pandemic. Profitability is likely to decrease from strong levels due to weaker asset quality and low credit growth.

Demand for credit in Colombia is recovering at a very slow pace, leading us to expect sluggish credit growth and a slower-than-anticipated recovery in asset quality. Banks' profitability has been suffering from costlier funding costs and weakening asset quality, stemming from persistently high interest rates. We believe the recovery in banks' operating performance will be gradual.

Peru's complex political landscape is likely to persist as the country approaches presidential and congressional elections scheduled for April 2026. Nevertheless, conditions are gradually improving, supported by economic growth, decreasing inflation, and lower interest rates. We expect asset quality metrics and profitability to continue improving, while banks' capitalization remains sound.

Chart 3

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Table 2

Ratings component scores: Top LatAm banks
Institution Operating company long-term ICR/Outlook Anchor Business position Capital and earnings Risk position Funding and liquidity SACP/GCP Type of support Number of notches support Additional factor adjustment

Argentina

Banco De Galicia Y Buenos Aires S.A.U.

 B-/Stable bb- Strong Constrained Adequate Adequate/Adequate bb- None 0 -3

Banco Patagonia S.A.

 B-/Stable b+ Adequate Moderate Adequate Adequate/Adequate b+ None 0 (2)
Brazil

Banco Citibank S.A.

 BB/Stable bb+ Adequate Moderate Adequate Moderate/Adequate bb None 0 0

Banco do Brasil S.A.

 BB/Stable bb+ Very strong Moderate Adequate Strong/Adequate bbb None 0 (3)

Banco Bradesco S.A.

 BB/Stable bb+ Very strong Constrained Adequate Strong/Adequate bbb- None 0 (2)

Caixa Economica Federal

 BB/Stable bb+ Adequate Constrained Moderate Strong/Strong bb None 0 0

Banco Santander (Brasil) S.A.

 BB/Stable bb+ Strong Moderate Adequate Strong/Adequate bbb- None 0 (2)

Banco Nacional de Desenvolvimento Economico e Social

 BB/Stable bb+ Adequate Adequate Strong Strong/Adequate bbb- None 0 (2)

Banco Safra S.A.

 BB/Stable bb+ Adequate Moderate Strong Adequate/Adequate bbb- None 0 (2)

Banco BTG Pactual S.A.

 BB/Stable bb+ Adequate Moderate Moderate Adequate/Adequate bb None 0 0

Banco Votorantim S.A.

 BB/Stable bb+ Adequate Moderate Moderate Adequate/Adequate bb- None 0 1

Banco do Estado do Rio Grande do Sul S.A.

 BB-/Stable bb+ Moderate Moderate Moderate Strong/Adequate bb- None 0 0

Chile

Banco de Credito e Inversiones

 A-/Stable bbb+ Strong Adequate Adequate Adequate/Adequate a- None 0 0

Banco del Estado de Chile

 A/Stable bbb+ Strong Adequate Adequate Strong/Strong a None 0 0

Banco Santander-Chile S.A.

 A-/Stable bbb+ Strong Adequate Adequate Adequate/Adequate a- None 0 0

Banco de Chile

 A/Stable bbb+ Strong Adequate Adequate Adequate/Adequate a None 0 0

Scotiabank Chile

 A/Stable bbb+ Adequate Adequate Adequate Adequate/Adequate bbb+ GCP 2 0

Colombia

Bancolombia, S. A. y Companias Subordinadas

 BB+/Negative bb+ Strong Constrained Adequate Adequate/Adequate bb+ None 0 0

Banco de Bogota S.A. y Subsidiarias

 BB+/Negative bb+ Strong Constrained Adequate Adequate/Adequate bb+ None 0 0

Banco Davivienda S.A.

 BB+/Negative bb+ Strong Moderate Moderate Adequate/Adequate bb+ None 0 0

Financiera de Desarrollo Territorial S.A. FINDETER

 BB+/Negative bb+ Adequate Strong Adequate Moderate/Adequate bb+ None 0 0

Financiera de Desarrollo Nacional S.A.

 BB+/Negative bb+ Moderate Strong Moderate Adequate/Adequate bb GRE 1 0
Mexico

BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo Financiero BBVA Bancomer y Subsidiarias

 BBB/Stable bbb- Strong Strong Adequate Adequate/Adequate bbb+ None 0 (1)

Banco Nacional de Mexico S.A. (Banamex)

 BBB/Stable bbb- Adequate Strong Adequate Adequate/Adequate bbb None 0 0

Banco Mercantil del Norte, S.A. Institucion de Banca Multiple Grupo Financiero Banorte

 BBB/Stable bbb- Strong Strong Adequate Adequate/Adequate bbb+ None 0 (1)

Banco Nacional de Obras y Servicios Publicos, S.N.C.

 BBB/Stable bbb- Adequate Strong Adequate Adequate/Adequate bbb None 0 0

HSBC Mexico, S.A.

 BBB/Stable bbb- Adequate Adequate Adequate Adequate/Adequate bbb- GCP 1 0

Nacional Financiera, S.N.C., Institucion de Banca de Desarrollo

 BBB+/Stable bbb- Adequate Moderate Moderate Adequate/Adequate bb GRE 4 0

Scotiabank Inverlat, S.A., Institucion de Banca Multiple, Grupo Financiero Scotiabank Inverlat

 BBB/Stable bbb- Adequate Strong Adequate Adequate/Adequate bbb None 0 0

Banco Inbursa S.A. Institucion de Banca Multiple Grupo Financiero Inbursa

 BBB/Stable bbb- Adequate Strong Adequate Adequate/Adequate bbb None 0 0

Banco Nacional de Comercio Exterior, S.N.C. (Bancomext)

 BBB+/Stable bbb- Adequate Adequate Adequate Adequate/Adequate bbb- GRE 2 0
Panama

BAC International Bank Inc.

 BBB-/Stable bb+ Strong Moderate Adequate Adequate/Adequate bbb- None 0 0

Banco General S.A.

 BBB/Stable bbb- Strong Very Strong Adequate Adequate/Strong a- None 0 (2)

Promerica Financial Corp.

 B+/Stable bb- Strong Constrained Adequate Adequate/Adequate bb- None 0 (1)

Banistmo S.A.

 BB+/Negative bbb- Adequate Adequate Moderate Adequate/Adequate bb+ None 0 0

Banco Nacional De Panama

 BBB-/Stable bbb- Adequate Strong Adequate Strong/Strong bbb+ None 0 (2)
Peru

Banco de Credito del Peru

 BBB-/Stable bbb- Strong Strong Adequate Adequate/Adequate bbb+ None 0 (2)

Banco BBVA Peru

 BBB-/Stable bbb- Strong Strong Adequate Adequate/Adequate bbb+ None 0 (2)

Scotiabank Peru S.A.A.

 BBB-/Stable bbb- Strong Strong Adequate Adequate/Adequate bbb+ None 0 (2)

Banco Internacional del Peru S.A.A. - Interbank

 BBB-/Stable bbb- Adequate Adequate Adequate Adequate/Adequate bbb- None 0 0

BICRA Changes

Argentina

We revised the economic risk trend in Argentina to positive from stable and the industry risk trend to stable from negative.

The positive trend in economic risk reflects our expectation that the current administration's comprehensive measures to reduce inflation, improve the central bank's balance sheet, and lower interest rates are gradually addressing existing imbalances in the banking sector. These actions are paving the way for economic stabilization and a return to sustained growth, which could enhance banks' operating performance and mitigate risks.

The stable industry risk trend reflects a decrease in the risk of deposit volatility due to improving economic conditions and greater deposit confidence, as demonstrated by the high participation of Argentines in the tax amnesty. Although Argentina's economic conditions remain fragile and the sovereign lacks access to external capital markets, banks' high levels of liquidity and strong regulatory solvency help mitigate these challenges.

Guatemala

We revised our economic risk trend for Guatemala to positive from stable. The positive economic risk trend reflects that we could revise the economic risk score in our BICRA to a stronger category if the economic prospects and the banking sector's dynamics remain favorable. Guatemala has manageable fiscal deficits, very low net debt, a strong external profile, and a history of sound monetary policy. As a result, the banking sector has posted significant credit growth while diversifying its loan book mix. Guatemalan banks' asset quality metrics have weakened in the past 12 months following rapid consumer lending growth. However, we expect these metrics will remain at manageable levels, with nonperforming assets stabilizing at about 3.0%, coverage ratios remaining above 100%, and credit losses below 2% over the next couple of years.

Peru

We revised our economic risk trend for Peru to stable from negative. Peru's low per capita GDP and the banking sector's significant exposure to cyclical industries--particularly micro, small, and midsize enterprises--influence our assessment of economic risk. These factors and the country's political turbulence and destructive weather events (just after the pandemic) have pressured asset quality. However, we expect it to recover gradually during 2025, thanks to improved economic conditions, falling inflation, lower interest rates, and favorable spillover effects from pension fund withdrawals. The banking sector's resilience stems from high loan-loss provisions, strong capitalization, and prudent underwriting practices, all of which we expect will help contain potential losses. In addition, we adjusted certain industry risk aspects of the BICRA on Peru, although our industry risk score remains unchanged and the industry risk trend is still stable.

Uruguay

We revised our assessment of industry risk to '5' from '6' for Uruguay. We also revised the industry risk trend to stable from positive. Uruguay's central bank (BCU) has consistently improved supervision and regulation since the 2002 financial crisis, which led to the financial sector's stability and the consistently lower risk of deposit volatility. In the past few years, the Financial Services Superintendency (SSF)--the agency within BCU that oversees and regulates the financial system--has made progress by adopting a risk-based supervisory approach. The SSF has progressively aligned with Basel III standards. Also, all banks now comply with the regulation on the net stable funding ratio and liquidity coverage ratio.

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Selected Research

Commentaries
Research updates
Economic, sovereign, and other research

This report does not constitute a rating action.

Primary Credit Analyst:Cynthia Cohen Freue, Buenos Aires + 54 11 4891 2161;
cynthia.cohenfreue@spglobal.com
Secondary Contacts:Alfredo E Calvo, Mexico City + 52 55 5081 4436;
alfredo.calvo@spglobal.com
Sergio A Garibian, Sao Paulo + 55 11 3039 9749;
sergio.garibian@spglobal.com
Patricia R Calvo, Mexico City + 52 55 5081 4481;
patricia.calvo@spglobal.com

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