The rapid appreciation of the Swiss franc (CHF) following the Swiss National Bank's Jan. 15 decision to remove the euro/Swiss franc ceiling is not a threat to the several Latin American banks that have issued Swiss franc-denominated bonds, as the amounts outstanding are relatively small and exchange risk is nearly 100% hedged, says Fitch Ratings.
Latin American commercial banks had about CHF4.5 billion of outstanding bonds as of Jan. 21, 2015, comprising less than 2.5% of the total bond issuances made in foreign currencies by Latin American banks. The amounts do not include Swiss franc-denominated bonds issued by the Latin American multilateral banks, which also typically fully hedged exposures.
The bulk of this exposure is at Chilean banks (about CHF2.5 billion), with the rest was issued by Brazilian and Panamanian banks. Some of the Swiss franc-denominated issues have been private placements and not all may be included in our tally. All of the bonds we account for mature on or before 2019, with interest rates ranging from 0.75% to 3%, highlighting the appeal of this funding source.
Low interest rates and ample appetite for Latin American debt lured some regional banks to the Swiss capital markets over the past several years.
While restrictive local regulations limit FX exposures, banks' risk management has generally chosen to fully hedge this risk.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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