New development bank to balance out commercial lenders' consumer focus - experts

- Tuesday, September 27, 2011

New development bank to balance out commercial lenders' consumer focus - experts

El Salvador's new development bank will help shift the microfinance sector's excessive consumer focus, experts told BNamericas.

Earlier this month, the Salvadorian parliament voted to amplify the state-run Banco Multisectorial de Inversiones (BMI) to a new second floor lender called Banco de Desarrollo de El Salvador (BDES). The new bank is expected to begin operating in early 2012.

BDES will have initial capital of US$201mn, which will be boosted later by outside investments and, potentially, government bond issues.

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The bank will focus on investments in targeted sectors such as education, agriculture, tourism and exports.

"The bank is a good idea as we don't at present have a strong bank that could help small and medium-sized firms," said Roberto Rubio-Fabián, executive director of El Salvador's public policy think-tank FUNDE.

Luis Alfredo Montano, El Salvador analyst at Latin American ratings agency PCR Ratings, pointed out that to gain access to BDES' resources, small businesses will have to prove that the loan is for an investment or a new project.

"This should help to balance out the aggregate demand in the country, because at present the [majority of] loans given by the financial system are for refinancing or consumption," he said.

"BDES is a small step in El Salvador's search to transform itself into a country dependent on production and not consumption."

El Salvador's left-wing government has been highly critical of the wholesale privatization, and subsequent foreign buyout, of the country's banking system in the 1990s. BDES is part of the ruling coalition's attempts to reintroduce the state element into the banking system.

"We already had nationalized banks, and we have to be careful," Rubio-Fabian said."What our experience tells us is that we have to watch out so the [development] bank doesn't begin giving out loans too easily without thinking of profitability. This is a vice a development bank tends to have."