Latam | Silicon Valley Bank and outlook for the region

Summary

How is Latin America affected by the recent difficulties facing certain banks in the US and Europe? In all honesty it is too early to tell, but any eventual impact would be indirect and would not happen via the Latin American banking system.

Key points

• Key points:
• According to our latest estimates at BBVA Research, Latin America is estimated to have grown by 3.6% in 2022, slowing to 0.6% in 2023 and then recovering to 1.6% in 2024. This slowdown will be a product of tight financial conditions, in turn due to higher global interest rates, which will dampen global growth and external demand in Latin America.
• Monetary policy in the region is also being tightened in a bid to reduce inflation and the authorities have been phasing out the fiscal stimulus implemented during the pandemic, now that rising interest rates are putting fiscal sustainability in the spotlight.
• The collapse of Silicon Valley Bank (SVB) is unlikely to have a direct impact: banks in the region do not have a significant exposure to these institutions, nor a similar business structure, and nor the frailties shown by SVB or other failed institutions.
• Exposure among Latin American banks to unrealised losses on their assets is manageable and the risk from rising interest rates is largely under control (and has even had a positive impact on most banks).
• However, while there is a risk of SVB having a negative impact on Latin America, the main risk is actually something quite different: economic activity below pre-pandemic trend GDP and only slightly positive per capita growth rates.

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