Banking

Latin American banks’ road to recovery

As we are witnessing the air getting clearly surrounding the pandemic across the globe recovery steps are starting to begin. It is not wrong to say that the most hit region is Latin America without a doubt. And inspite of the difficult health situation , banking systems thrived so far. They have responded well to the crisis and its socio economic impacts. As the recovery initiatives take place , the region’s financial institutions anticipate in increasing the investment by digitalization and sustainability.

Digitalization and sustainability are the key factors which ensures the resilience and a future to the business continuation for their clients. Latin America accounted for 21% of global Covid-19 cases, and 31% of reported deaths even though it was hit a little later compared to other regions. The economic instability was seen April 2020 onwards. The result was shocking as the region’s population makes up just 8.2% of the total global population.

The first phase of the crisis had varied yet strong responses from the Government. As they prioritized the preservation of lives and livelihoods with many countries implementing lockdowns. With plummeting trade flows and business confidence going lower, the region managed to void financial collapse and most countries retained access to Global Financial Markets. Economies such as Argentina’s and Ecuador’s were able to negotiate their debts restructurings even if they were fragile pre pandemic amidst global disruption. There was an initial scramble in the region’s financial services sector for the US dollar liquidity between the months of March and April 2020. In the month of May when governments , central banks and regulators stepped up efforts in order to provide financial markets a backstop on the US dollar , there was a considerable improvement in the regions.

The measures such as having ‘Whatever it takes’ initiatives to introduce quantitative easing type policies which allowed the banks to reschedule loans and be generous with agreement facilities , started around August last year. These helped in strengthening the economic recovery. One such good thing was the recovery of the south-south trade corridor, such as china which were the key trading partners of the corridor began to recover which helped in easing the hard and soft commodities export from Latin America. Trade volumes slowly but steadily inched back to previous levels.

With adequate solvency and liquidity ratios , the result of measure taken after the last global financial crisis most part of the region’s banking systems had got a good shape even after the virus arrived. Regulators , too have played a crucial role by introducing guarantee schemes for credit facilities , loan moratoriums and looser loan classifications and provisioning rules, to incentivize banks to continue lending.

An estimate of around US $8 billion of yearly financing is needed until 2030 in order to combat the effects of climate change in Latin America. Financial institutions will play a large role in meeting this demand and promoting action amongst their clients.

It is expected that local currencies will regain the strength after the vaccines have arrived and the region starts its economic recovery post pandemic. The future will depend on the measures taken by the governments in the region choose to support their economies by directing public investments towards the growth and inturn help the employment ratio to grow.

The banks must remain prudent in protecting their financial strengths. The banks should begin their journey for the future of digitalization and green developments , as it with no doubts shall reap the rewards in the longer term.

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