Financial intermediation: the fastest-growing sector over 25 years

• Financial intermediation grew at an average annual rate of 12% between 2001 and 2024, three times faster than the rest of the economy (Figure 1).
• Its expansion has been gradual and sustained over the yearsFootnote 1^[1].
• Commercial banks account for a large share of this, holding more than 80% of total financial system assetsFootnote 2^[2] (Figure 2).

• Honduras has the highest average annual credit growthFootnote 3^[3] in the region: 12% between 2002 and 2024Footnote 4^[4] (Figure 3).
• Credit in Honduras rose from 39% of GDP in 2001 to 90% in 2024. With the exception of Panama, this is the highest level in Central America and almost triple that of Nicaragua (Figure 4).

• Loans and deposits have grown at the same pace: 13% over the 2001–2024 periodFootnote 7^[7] (Figure 5).
• Yet interest income from loans has consistently exceeded interest expense on deposits (Figure 6) — by almost three times in 2024 — which partly explains the increase in the sector's total value addedFootnote 8^[8].

• The non-performing loan (NPL) ratio of commercial banks fell sharply, from 13% in 2001 to 2% in 2024 (Figure 7), reflecting either more sophisticated or more restrictive risk management by financial institutions, or an improvement in borrowers' repayment capacity or behavior.
• Over the same period, NPL ratios in other countries in the region — such as Costa Rica and Panama — fell by smaller margins: 5 and 2 percentage points (pp), respectively.
• This improvement in banking asset quality produces a double positive effect for the financial system: it increases the effective recovery of loan income and frees up resources that were previously set aside for loan-loss reservesFootnote 10^[10], allowing greater intermediation capacity.

• Fees represent the explicit and most direct component of financial intermediation services output: they rose from 14% of interest income in 2009 to 25% fifteen years later (Figure 8).
• This shift toward non-credit services has allowed the sector to generate additional value added without necessarily expanding traditional intermediation volumes.

• The drop in NPLs from 13% to 2% could reflect better risk management, but also greater selectivity in lending. If banks are more restrictive, emerging sectors and entrepreneurs may be shut out of financing.
• Although Honduras leads the region in credit growth, close to 9 in every 10 Hondurans have not applied for credit: 19% say they lack access because they do not meet the requirements, and 21% think borrowing is too risky (CNBS, 2025).
• If the financial sector is growing so fast… are the benefits of that expansion being passed on to users in the form of better rates? An analysis of spreads between lending and deposit rates would show whether growth is translating into more competitive conditions.

In the next Infobyte, we will examine where credit is flowing, how intermediation margins work, and what the evidence says about how inclusive access to the Honduran financial system really is.