May 18, 2016
Ineffective anti-money laundering controls in some banks have come to light recently in Panama, Honduras and Guatemala and reputational risk could spread throughout the region. This brings another layer of risks to the region’s banks and exposes them to heightened event risk, says Fitch Ratings.
Regulators are taking measures to bolster controls and rated banks have taken steps to bring controls into line with international standards.
Since 4Q15, a handful of unrelated incidents highlighted that Central American banks are exposed to risks from weaknesses in their regulatory frameworks. The Central American banking sector is already under pressure, weighed down by slowing economic growth. Rated banks in the region said that correspondent banks have reduced funding lines this year given weaker economic prospects and, in our opinion, news about weak governance and poor transparency is likely to cause a further drying up of wholesale funding for the region.
The operating environment often keeps ratings low in Central American countries, but weak or ineffective corporate governance can also act as a constraining factor. We assign investment-grade ratings to seven banks in Panama and one in Costa Rica. Other Central American banks achieve ratings in the ‘BB’ and ‘B’ categories, which incorporate weaknesses in the governance and regulatory environment compared with higher rated countries.