Guatemala & Central America – Economic and Banking Industry Update

The event’s focus was to update the state of the regional and local economic conditions. Additionally, the focus was on discussing the health of the local and regional financial system. I want to share information and some slides from one of the presentations. The presentation belongs to Luis Lara Grojec, president of the ABG.

One prevalent theme that came up repeatedly was how important the health of the U.S. economy is for the region’s economy. There seems to be optimism about the economic recovery in the U.S. Consensus exists about the fact that it is taking and will take longer than anticipated to make a full recovery. There was an observation about the Guatemalan economy and its resiliency, showing in two events:

• Guatemala was one of the few countries in the world to post a positive GDP (PIB in Spanish) growth during the financial crisis of 2008 – 2009
• Despite the political unrest the country suffered last year, which ended with the fall of former president Otto Perez Molina, its economy was not affected. It grew by 4.1% in 2015, and it is projected to grow by 3.9% in 2016.

A couple of reasons for this, according to Mr. Lara, are that 92% of the GDP comes from the private sector. This illustrates the positive effects of small government. Also that the Central Bank cannot, by law, to loan money to the government. This is something that other countries allow with negative consequences.

There are certain areas of opportunity. While there is consistent GDP growth, it is moderate at around 4% for the last 3 years. Guatemala needs a GDP growth rate of 6% to attain the desired economic growth. Also, there are infrastructure problems. Mr. Lara illustrated this by mentioning that it takes a truck 3 times the time to cover the same distance in Guatemala as it would in the U.S.

There was also a healthy discussion about the possibility of a devaluation of the national currency, the Quetzal. The consensus was that the current exchange rate policy is adequate because it obeys market supply and demand. 

From a regional perspective, Guatemala contributes 28.2% of the region’s GDP. Panama follows with 23.7%. Costa Rica contributes with 22.8%. El Salvador with 11%. Honduras contributes with 8.8%, and Nicaragua contributes 5.4%.

Panama has seen impressive GDP growth in the last 10 years. Their average is 7.5% per year. There was an observation of Panama’s growth because of foreign deposits.  Nicaragua, Guatemala, Honduras, Costa Rica, and El Salvador follow.

In terms of projected growth for 2016, the same trend of growth continues in the region, at a slightly slower pace.

In terms of access to banking services, “bancarización” in Spanish. The region has tremendous growth potential. This is due to the low levels of “bancarización,” as illustrated in the graph below.

Finally, The banking industry is growing. This is due to its assets have grown 4.57% YOY, from US$105.98 Billion in 2014 to US$110.83 Billion in 2015. Costa Rica led the region with the most assets and equity. El Salvador led the region in YOY growth with 11.5% YOY growth in assets. Honduras, on the other hand, saw a 12.2% YOY decrease in assets.

I hope this high-level overview of the current economic conditions and the banking industry state in Guatemala and the Central American region is helpful. One thing I can tell you is that I am very excited about the prospects of Central America. While there are areas that need to be fixed, such as security and infrastructure. There is a lot of opportunity for organizations that support the Banking Industry as growth will continue.

I want to thank the staff from the ABG/EBG for their hospitality and congratulate them on a great event; you can visit their website www.ebg.edu.gt (Content in Spanish) to learn more about them and their upcoming events. There were other themes covered. I will write about those in upcoming posts.

This article was published on LinkedIn. Also, credit to Nasa for that wonderful image.