Macroeconomic and Financial Situation in Central America - Special Financial Stability Reports - Second Half 2022
The main purpose of these reports is to monitor the vulnerabilities and risks of the financial system. Opinions and potential errors are the sole responsibility of the authors, and their contents do not compromise the Board of Directors of Banco de la República (the Central Bank of Colombia).
The Financial Stability Special Reports accompany the publication of the Financial Stability Report and provide a more detailed analysis of some aspects and risks relevant to the stability of the Colombian financial system: market liquidity risk, market risk, credit risk, financial burden, loan portfolio, and housing market in Colombia, international indicators, concentration, and competition in the deposit and credit markets, corporate sector surveys, and financial inclusion.
Monitoring the macroeconomic and financial outlook of Central American economies has become increasingly important with the expansion of Colombian banks in these countries in recent years, particularly in Costa Rica, El Salvador, Guatemala, Honduras, Panama, and Nicaragua. The macroeconomic conditions of countries with a growing presence of Colombian financial conglomerates have become relevant for Colombia’s financial stability, for identifying the main vulnerabilities faced by these institutions and for designing stress scenarios.
The first section of this report presents a color scale that indicates the macroeconomic vulnerability that may be present in the economic activity through growth indicators, fiscal and public debt figures, the external sector, inflation, and different financial indicators. In this respect, the evolution of vulnerability over time in each of these dimensions is presented for each country, as well as a comparison between them for 2020, 2021, and 2022, with the aim of identifying the greatest risks in the region. This analysis allows to identify the vulnerable dimensions in which countries have the greatest challenges and in which the greatest progress was achieved until the pandemic and afterwards. Based on this, some challenges for Central America are identified such as the persistence of fiscal vulnerability from 2019 and financial vulnerability in 2021, as well as particular vulnerabilities such as those of Costa Rica and Guatemala in economic activity; those of El Salvador, Panama, Costa Rica, and Honduras in external vulnerability; and those of Nicaragua, El Salvador, and Honduras in terms of inflation. Similarly, the findings suggest that the greatest setbacks produced by the pandemic in 2020 are in the real and fiscal dimensions, while the ones caused by the international situation in 2021 are in the monetary and financial dimensions. In line with this analysis, the second section of the report seeks to present the macroeconomic context of each of the countries of interest in terms of economic activity and fiscal and inflation figures based on official sources. This section identifies some of the major challenges for each of the countries, such as fiscal issues for Costa Rica, Honduras, Panama, and Nicaragua; inflation for El Salvador, Guatemala, Nicaragua, and Honduras; and external issues for Costa Rica. The last section presents an assessment of the main financial indicators of Central America and Colombia. In particular, the behavior of the real gross portfolio, risk management, efficiency, ex-post intermediation margin and Return on Assets (ROA) between June 2021 and June 2022 are analyzed.
