Latin American Banks Issue Record Levels of Unsecured Debt

Moody’s Investors Service reports that Moody’s-rated banks in Latin America have defied a declining global trend for unsecured debt issuance, by issuing a record US$27.7bn in unsecured long term debt in 2012.

“The record level of debt issuance is a 13.6% increase from last year,” said Jeanne Del Casino, a Moody’s vice president and senior credit officer and also one of the authors of the credit ratings agency’s (CRA) report, entitled
‘Moody’s Latin America Bank Debt Report: Issuance Rises, Bucking Global Trend’
. “The increase was spurred by strong loan growth, merger and acquisition activity and growing investor demand,” she added.

Moody’s notes that global debt issuance declined by 6% as bank restructurings and deleveraging, primarily in the eurozone, weighed on the markets since the 2008-09 financial crisis.

“Brazilian banks in particular have led the way for debt issuance,” said Del Casino. “Of the US$87bn of unsecured debt issued by Moody’s-rated banks during the three-year period between 2009 and 2012, banks in Brazil have issued US$55bin, or two thirds, while banks in Mexico, Chile, Colombia, and Peru have issued most of the remaining third, or about US$28 bn.”

The CRA noted that these historically high levels reflect unprecedented low interest rates and high global liquidity that offers low funding costs and term opportunities for the region’s banks. It is also indicative of stable credit metrics and country fundamentals that have provided Latin American banks with improved access to capital markets, suggests the report.

However, increased debt issuance by banks is on balance credit negative, as it increases their reliance on wholesale markets and raises refinancing risk should investors become more risk averse to emerging market instruments, says Moody’s. Still, refinancing risks are partially mitigated by banks’ ability to take medium and longer tenors in the international markets, notes the report.


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