PR Banking Industry Report Q4 2017

The local banking industry’s profitability stayed in positive territory in year-end 2017, reaching an industry-wide Pre-Tax ROE of 4.6%, notwithstanding the challenging operating market conditions, characterized by an economy mired in a prolonged and deep contraction, a bankrupt government under Puerto Rico Oversight, Management and Economic Stability Act Title III court proceedings, and more recently, the devastation and ensuing cascading effects of Hurricanes Irma and María which severely disrupted the island’s normal social and economic life. During the first half of 2017 local banks on a consolidated level posted Pre-Tax ROEs above 8.5%, dipping to -0.6% in Q3 2017 and 1.6% in Q4 2017. All banks, with the exception of Scotia which took the hit in Q4, incurred in high provision expenses in Q3 2017 due to anticipated hurricane-related losses, materially decreasing in Q4 2017. Despite this panorama, bank executives remain optimistic of the short-term outlook, pointing to the influx of funds from the federal government, insurance claims, and other sources propping up deposits, favorable trends in loan payment moratoriums, and construction sector lending op- portunities when rebuilding efforts pick up. Nevertheless, downside risks to economic and bank activity still loom large.