Global bond offerings by Latin American banks could recover this year, with a focus on senior rather than subordinated securities, as some Mexican, Colombian and Peruvian lenders face growing refinancing and funding needs, J.P. Morgan Securities said on Monday. In a client note, analyst Natalia Corfield forecast $12.5 billion of new Latin American bank bonds this year, more than double the $5.8 billion in 2014, though down 58 percent from the record $30 billion in 2012. Offerings among regional banks last year were the smallest since 2008, she added.
Banks in the region are more likely to pursue sales of senior rather than subordinated bonds, as they expect lower loan book growth and need less new capital in an extended regional downturn, the note added. Senior bonds are repaid before subordinated securities.
Offerings of investment grade-rated bank bonds may spearhead the recovery, although a larger number of speculative deals are expected in the wake of the sovereign rating downgrades that Brazil faced late last year. More deals from Central America and Argentina are expected as well, she said. Corfield said she remains "cautious" about Brazil and Colombia, whose banking systems could be weakened by several factors including rising global borrowing costs, slowing domestic growth or loan book quality. She is less wary about Peru, Chile and Mexico banks, calling the last group "the bright spot among Latin American financial institutions."
Brazil's financial system is one of the most vulnerable in Latin America, Corfield said, citing an "extremely challenging macroeconomic backdrop, which could lead to a more pronounced and prolonged non-performing loan cycle." Analysts expect the current recession, which began about 18 months ago, to be the longest and steepest since at least 1901. A deteriorating political situation as well as fallout from a growing corruption scandal at state firms could also further delay economic recovery, the note added.
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