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Despite expected loan growth of 10%, Uruguayan private banks' earnings will likely remain flat in 2011 due to a stronger local currency and higher than expected inflation, Moody's banking analyst Valeria Azconegui told BNamericas.
The 7.6% appreciation of the Uruguayan peso in 1H11 has put pressure on banks' earnings as the system is highly dollarized, while price increases have taken its toll on banks' expenses, she said.
Inflation ran at an annualized 8.2% rate in July, above the central bank BCU's 6% target.
Uruguay's private sector banks posted a combined 567mn-peso (US$30.6mn) loss for January-July on higher expenses and taxes after making a 824mn-peso profit in the same period last year.
The sector's net loans rose 7.77% to 208bn pesos during the 12 months ending July 31 led by the consumer, manufacturing and agribusiness sectors.
As global interest rates have hit record lows since the end of 2008, Uruguayan banks have been more prone to develop the consumer and corporate loan segments, which gives them a stronger recurring revenues platform, said Azconegui.
"The system's main challenge is to grow intermediation among the private sector. Despite the benign current macroeconomic scenario, the banking system remains highly transactional, with a ratio of loans to GDP of only 20%," she said.
Private sector banks' assets totaled 276bn pesos at the end of July, with equity amounting to 23.2bn pesos.
The Uruguayan banking system is dominated by state-owned BROU, which holds about 50% total assets.