Bad loans soar due to economic crisis

- Tuesday, September 24, 2002

Bad loans soar due to economic crisis

Bad loans in Paraguay's financial system have soared to historic levels due to the country's deep economic crisis, a spokesperson from the central bank told BNamericas.

Paraguay's financial system had a past-due loan ratio of 20.6% at the end of August, according to central bank figures. There is a worrying trend that bad loans are growing since that ratio stood at 19.8% in July, the spokesperson noted.

During the last couple of years the level of past-due loans never reached more than 12%, the spokesperson said. Even during the financial crises in 1995 and 1997 the level never surpassed 15%.

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A deep economic recession is the main culprit behind soaring bad loans. "Everything is at a stand-still here and there's no improvement in sight," the spokesperson said in reference to the economy and local industry.

However, the financial health of the banks is still fairly solid even after the intervention in June of the country's largest bank Banco Aleman. So far no other banks have suffered financial problems in the wake of Aleman's intervention, he noted.

Paraguay's economy badly needs a US$200mn credit line from the IMF, but there is resistance among politicians and local business to some economic reforms that come attached to the loan, the spokesperson said. The reforms have been approved by the Senate and are now being negotiated in the lower house where there is more political resistance to give in to the IMF's demands, he said.