IMF calls on government to discourage risk taking in financial sector

- Wednesday, June 15, 2011

IMF calls on government to discourage risk taking in financial sector

The IMF has called for Paraguay's government to discourage the financial sector from excessive risk taking, as it would threaten its hard-won financial stability, according to a statement from the multilateral following a visit for its 2011 Article IV consultations rounds.

The IMF added that Paraguay's banking system has remained sound and that system profitability continues to be very high in international comparisons. "Key financial soundness indicators, such as capital adequacy ratios and non-performing loan ratios, are at reassuring levels, although provisions are relatively low," the statement reads.

The multilateral noted that in late 2010, central bank BCP approved measures to strengthen financial system buffers, including through higher generic loan provisions and minimum capital requirements for banks and financial institutions.

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As for non-bank financial sector supervision, the IMF recognized this has improved in some areas for cooperatives, but still remains laxer than bank supervision.

The IMF recommended local authorities to continue observing credit, inflation and economic activity developments with a close eye. It also recommended that the country's future fiscal policy adopt at least a neutral, if not countercyclical, approach to reduce the burden of monetary policy when seeking to combat domestic demand pressures.