By Marion Giraldo
MEXICO CITY (Reuters) - Banks in Mexico and Paraguay are set to be regional leaders in 2024 thanks to operating conditions in each country, analysts at rating agency Moody's (NYSE:MCO) said on Wednesday.
Among 10 markets in the region, the two countries are the only ones with a "positive" outlook for the year. Seven others are labeled as "stable," and Argentina, which has been hit by triple-digit inflation, has a "negative" outlook.
Banks around the world face headwinds such as lower economic growth and high interest rates in the United States and Europe.
"We expect the profitability of banks in Mexico to benefit from the conditions created by nearshoring, as well as lower funding costs," said Moody's analyst Felipe Carvallo in an online event.
The impacts of nearshoring, or moving of corporate investments closer to their final markets such as the United States, will boost commercial banking in Mexico and some Central American markets - particularly Costa Rica - later this year, Moody's said.
In South America's Southern Cone, Chile's banks are well positioned to improve their credit quality after a deterioration that started in early 2022. Demand for loans should increase, Moody's said, and households are expected to be more able to meet debt payments.
In Brazil, Latin America's largest economy, 2024's outlook should be "benign" due to lower late payments, helping keep profitability stable, Moody's said.
In Argentina, inflation, which has slowed since libertarian President Javier Milei took office but still remains prohibitively high, leaves little room for banks to maneuver and boost returns, according to Moody's.