Economic and financial context
From chapter 3:
Companies thrive in a healthy economy, and thriving companies are good business for banks. The converse is, of course, also true. In this box, we assess the impact of changes in macroeconomic conditions on nonfinancial corporate solvency risk, and its implications for the banking sector in LA5 countries—Brazil, Chile, Colombia, Mexico, and Peru. In particular, we estimate the potential effect on bank provisions and capital from an increase in corporate solvency risk. Banks in LA5 countries have a sizable exposure to corporate lending, ranging from 8 percent of GDP in Mexico to 35 percent of GDP in Chile.
The companion working paper, Bottom-Up Default Analysis of Corporate Solvency Risk: An Application to Latin America, presents the analysis in more detail.
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