This document summarizes credit profiles and credit rating migration of banks in Latin America. It discusses what constitutes a credit profile and how credit ratings can migrate over time. It then provides an overview of the banking sector and economy in Latin America. It notes that while Latin American banks faced challenges, the sector has become stable and enticing. The outlook sections discuss Moody's reports on outlooks in 2013 and 2014, noting expected deterioration in credit conditions but overall stability for bank ratings due to solid profitability and capitalization.

1. CREDIT PROFILES AND RATING MIGRATION
OF BANKS IN LATIN AMERICA
Pinaky Pratyangira Paliwal
Roll No. 961
Semester V
Under the Expert Guidance of Prof. Rituparna Das

2. CREDIT PROFILE
• A credit profile is a document which
provides information about someone's
credit history.
• Credit profiles are used by lenders and
other agencies which offer credit to
determine someone's creditworthiness, and
they are also utilized by prospective
landlords and other people who might have
an interest in someone's credit history.
• A good credit profile will make it easier for
someone to access credit, and a bad credit
profile can become a major stumbling
block.

3. WHAT CONSTITUTES CREDIT
PROFILE?

4. WHAT CONSTITUTES CREDIT
PROFILE?

5. CREDIT RATING MIGRATION
• Credit Migration or Credit Rating Transition refers to upgrading or
worsening in a credit's ranking and credit grade over time. It is the
migration of a debt instrument from one rating to another rating over
a period of time.
• This movement indicates the change in the credit quality of the
instrument assessed by the rating agency.
• The International Rating Agencies such as S&Ps, Moody's, and
Fitch assess the credit quality of the entire debt instrument in their
portfolio and assign a rating to the credit quality.
• This rating changes as and when new information is available about
the obligor's financial health.

6. RATING PROCESS

7. ADVANTAGES OF CREDIT RATING

8. LATIN AMERICAN ECONOMY
• Latin America, for many years a continent beset by turbulent economic
problems and an underdeveloped banking industry, has emerged over
the last decade as a highly promising region.
• It comes at a time when the regions that have driven world economic
growth – namely the US and Europe – battle their way out of the serious
economic problems of the last few years.
• The banking industry around the world is undergoing fundamental
change – new regulations are being implemented to prevent overly
speculative practices, banks are being broken up or bundled up, and the
industry is looking at how it can regain the trust of the general public.

9. BANKING SECTOR IN LATIN
AMERICA • While Latin America has faced its own challenges, it has developed
a comparatively stable and enticing banking industry quite different
to its European and North American cousins.
• The banking sector in LATAM has experienced much of the global
upheaval seen in the rest of the world over the last couple of years.
• Banking is back in Latin America. While most of the rest of the world
is still recovering from the global financial crisis of 2008, Latin
American banks have recovered.
• Five factors have fueled that growth: a growing middle class, access
to banks for the previously “unbanked” population, growth in
deposits, a broader and expanding loan portfolio, and greater
efficiency by Latin American banks.

10. BANKING SECTOR IN LATIN
AMERICA
• Since the 1990s, the banking system has been through a
financial liberalization process that involved its
deregulation, regional openness to foreign bank entry
and the decline of government intervention due to
privatization. Despite this financial reform, Latin
American banks are still vulnerable to macroeconomic
and external shocks and to new risks such as market,
credit and liquidity risks.
•
• Mexico in 1994, Ecuador in 1999, Argentina in 2001,
Uruguay in 2002 and the Dominican Republic in 2003
faced banking crises, the sources of which were
macroeconomic or external shocks.

11. BANKING SECTOR IN LATIN
AMERICA
• Brazilian banks have led the surge, occupying the top
five spots on The Banker’s list of the best Latin American
banks. They’ve done this mainly by focusing on the
growth of the middle class.
• The middle class in Latin America has grown to 51% of
the population in the major economies in 2011, from just
41% in 2001. That growth in the middle class has
pushed per capita income to $11,900 from $7,600 a
decade ago.

12. BANKING SECTOR IN LATIN
AMERICA
• Despite the dominance of banks, the size of the banking
system in Latin America is relatively small when
compared to emerging Asia and Europe.
• The banking system in Latin America is approximately
35% of GDP, underscoring its lack of depth when
compared to shares of 90% and 50% of emerging Asia’s
and emerging Europe’s GDP, respectively.

13. OUTLOOK 2013
• Moody's Investors Service changed to
stable, from positive, the outlook on the
standalone bank financial strength ratings
of three Brazilian financial institutions
• Moody's also changed to stable, from
positive, the outlook on the long-term global
local currency deposit, issuer, and debt
ratings of eight financial institutions.
• Further, it changed to stable, from positive,
the outlook on the long-term global foreign
currency deposit, senior and subordinated
debt ratings of 10 financial institutions and
their respective foreign branches.

14. OUTLOOK 2013
• Moody's also revised to negative, from
stable, the outlook on the standalone
bank financial strength rating of Banco
do Brasil and has placed on review for
downgrade the standalone bank
financial strength rating, the long and
short-term deposits and debt ratings of
Banco Votorantim.
• As a consequence there was change in
outlook to stable, from positive, on
Brazil's government bond ratings as
well.

15. OUTLOOK 2013
• However, despite the downfall, Moody’s
rated banks in Latin America have defied a
declining global trend for unsecured debt
issuance by issuing a record $27.7 billion in
unsecured long term debt.
• This record issuance is a 13.6% increase
from last year“. This is when global debt
issuance declined by 6% as bank
restructurings and deleveraging, primarily in
the Euro zone, weighed on the markets
since the 2008-2009 financial crisis.

16. OUTLOOK 2013
• Brazilian banks in particular have led the
way for debt issuance.
• Of the $87 billion of unsecured debt issued
by Moody's-rated banks during the three-year
period between 2009 and 2012, banks
in Brazil have issued $55 billion, or two
thirds, while banks in Mexico, Chile,
Colombia, and Peru have issued most of
the remaining third, or about $28 billion.“
• As per Moody’s is indicative of stable credit
metrics and country fundamentals that have
provided Latin American banks with
improved access to capital markets, says
the report.

17. OUTLOOK 2013
• However, increased debt issuance by
banks is on balance credit negative, as it
increases their reliance on wholesale
markets and raises refinancing risk should
investors become more risk averse to
emerging market instruments, says
Moody's.
• Still, refinancing risks are partially mitigated
by banks ability to take medium and longer
tenors in the international markets, notes
the report.

18. RATINGS DEGRADATION 2013

19. OUTLOOK 2014
• The outlook for banks in Latin America is stable despite
an expected deterioration in credit conditions during
2014, says Moody's Investors Service in its special
comment " 2014 Outlook -- Latin American Banks “
• "The banks' financial fundamentals will prove resilient to
an expected deterioration in credit conditions over the
outlook horizon," said Celina Vansetti-Hutchins, a
Moody's Managing Director and author of the report.
"Solid profitability and capitalization levels will ensure
rating stability for banks across the region for the
remainder of 2013 and 2014.“

20. OUTLOOK 2014
• Even under an adverse scenario, Moody's expects that LatAm
banks would be able to absorb losses and meet regulatory
capital requirements. However, the rating agency expects a
cyclical deterioration of credit conditions across the region in
2014, driven by persistently below-trend economic growth,
rising real interest rates and a consequent increase in asset
quality pressures.
• The Brazilian economy has recovered only modestly from its
sharp deterioration in 2012, while in Mexico, weaker-than-expected
external demand has weighed on exports and again
highlighted the vulnerability of Mexico to economic conditions
in the US, says Moody's.

21. OUTLOOK 2014
• In the rest of the region, economic growth is expected to
remain broadly stable and close to trend growth in 2014,
says the rating agency. However, downside risks
continue to dominate Moody's outlook, including a
potential rise in real interest rates, pro-cyclical monetary
policies leading to further liquidity tightening, and a
weaker-than-expected external demand for commodities.
• Looking forward into 2014, LatAm banks will be
challenged to mitigate the impact of rising fund costs and
slowing demand on profitability, says the rating agency.
In addition, the banks' asset quality is vulnerable to rising
real interest rates.

22. OUTLOOK 2014
• Indebtedness levels are at historical highs in the region, says
Moody's. Sluggish economic growth coupled with the rising
rates will swell loan delinquencies and associated credit
costs, and LatAm banks will need to make efficiency gains to
maintain their relatively high returns, compared to their global
peers.
• Standards & Poor’s cut the credit rating on 13 financial firms
and put another 27 companies on credit watch negative.
• Nearly every known bank in Brazil was either put on credit
watch negative or fell a notch on the Standard & Poor’s credit
scale, including BTG Pactual, one of Brazil’s largest
investment banks, and government behemoth Banco do
Brasil .

23. RATING DEGRADATION 2014