Fitch Ratings: Corporate Credit May Be Stabilizing in Latin America but Regional Risks Remain – Especially in Colombia

While corporate credit indicators are showing signs of stabilization in several Lain American countries — namely Argentina and Peru — challenges still remain for Colombia, says a new report from Fitch Ratings. The New York-based big-three rating agency noted that some 40% of Colombian corporates with international ratings held a negative outlook, as of the end of 2016, a percentage well above that of its regional peers.

More than half (53%) still hold a stable outlook, but the large number in negative territory reflects the effect that Fitch putting Colombia’s sovereign outlook on negative watch last July has had throughout the country. Overall in 2016, the pace of downgrades to upgrades was 2:1 compared to 1:1 in 2015. The agency also noted that companies have been hurt by the weak performance in the oil, telecom, and consumer industries.

The current news in Colombia, however, is not as bad as it is in Brazil, where downgrades for corporates are expected to continue to outpace upgrades in 2017 (albeit at a lower ratio compared to 2016). Overall, more than half (51%) of rated Brazilian corporates are on negative outlook.

In Chile, by contrast, only 15% of corporates held a negative outlook at the end of 2016. And this number was even better — at just 13% — in Argentina, showing a major turnaround in an economy that was among the worst in the region a few years ago. In fact, for the first time, Fitch didn’t downgrade any Argentine corporates during 2016, and 10 companies even saw upgrades.

This positive news, along with similarly encouraging figures from Peru (where 18% of corporates are on negative outlook), has led Fitch to believe that a regional turnaround may be in the making. “Signs for an improvement in credit metrics are slowly emerging for corporates across Latin America following a tough year during 2016,” said Jay Djemal, director at Fitch Ratings.

But that doesn’t mean that many countries, and the region as a whole, are out of the woods yet. “Major challenges in the road ahead include shifts in the geopolitical landscape and likely changes to current cross-border trade agreements, fiscal reform measures discouraging consumer spending and slower-than-expected economic recovery in Brazil.”