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LatAm NBFIs See Increased Funding, Liquidity Risk Amid Downturn – Fitch

Funding and liquidity will remain challenging to Latin America’s non-bank financing institutions (NBFIs) amid continued economic and political uncertainty on the continent, Fitch Ratings warned in a note to investors.

Jan 10, 2020 // 4:30AM

Latin American non-bank financial institutions are likely to face refinancing risk as liquidity on domestic debt markets stays modest at best, but larger firms’ access to global capital markets should remain open, albeit at higher costs, the agency’s analysts noted.

Noting that NBFI’s funding profiles typically are weaker than their commercial bank peers, with high reliance on wholesale funding, and given Latin America’s policy and trade uncertainty, local markets’ appetite for unsecured debt from NBFI will remain limited, squeezed by regulatory pressures, lack of diversification and greater issuer concentration compared to traditional banks.

“Funding terms for NBFIs often include increased collateral requirements such as irrevocable, unconditional guarantees by NBFI subsidiaries or pledged loans. Other sources of funding such as credit facilities from commercial banks or other financial institutions have remained modest, albeit relatively stable, despite the economic downturn,” the rating agency said, adding that the share of these alternative channels in the overall debt composition is fairly insignificant, standing at 22%.

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