OCIF chief sees deposit pricing falling after Fed's interest rate announcement

Wednesday, August 31, 2011

Deposit pricing in Puerto Rico's banking system has been falling lately, and the trend is likely to continue over the next few quarters following the Federal Reserve's announcement that it will hold its key interest rate at a record low until 2013, Alfredo Padilla, Puerto Rico's commissioner of financial institutions (OCIF), told BNamericas.

Puerto Rico's banking sector has, over the last few years, dealt with extremely difficult conditions due to a stubborn recession in the island, sluggish credit demand, high levels of loan defaults and an increase in provisions for loan losses, mainly caused by a crisis in the real estate sector.

As a result of this environment, the Federal Deposit Insurance Corporation last year intervened in three local failed lenders, resulting in a system with fewer but larger and healthier banks.

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"Thanks to this consolidation process, the banking system's capital base received a boost, and troubled non-performing assets were isolated through loss-share agreements," Padilla said.

"Banks have also been deleveraging their balance sheets through a sharp reduction in brokered deposits. We still have to complete FirstBancorp's [NYSE: FBP] capitalization process to finish stabilizing the system, in order to make way for growth and see favorable results," Padilla said.

The full interview with Padilla will be published in this week's Banking Perspectives, for subscribers only.