Government favoring backroom pressure, deals to rein in banks - Fitch

Friday, April 1, 2011

Bolivia's government has been managing its regulatory relationship with banks through a variety of backroom deals and arm twisting, Fitch consultant Cecilia Pérez told BNamericas.

The country's style of interacting with banks contrasts with the overt threats and public pressure tactics used by left-wing ally governments in Ecuador and Venezuela.

"They're reaching consensus," Pérez said. "They have a series of gentlemen's agreements."

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For example, Pérez said that after Bolivian banks spent the last few years paying out 90% of their earnings as dividends, regulators warned banks that they must start reinvesting at least 50% of earnings or face formal regulatory action.

"[The government] has been trying to improve regulation of bank solvency," Pérez said, noting that Bolivian banks maintain rather low capital adequacy ratios compared with their regional peers.

Pérez also said regulators have been pressuring banks to raise interest rates on deposits of less than US$5,000 and grant smaller loans with lower interest rates to the productive sector.

Through the end of February, Bolivian banks were taking advantage of very high liquidity to expand their combined loan portfolio by more than 30% annually, according to the latest figures from regulator ASFI.