El Salvador banks see mixed year as fiscal issues loom

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Tuesday, February 14, 2017

El Salvador's banking association (Abansa) reported an expansion in both deposits and total credit, while urging the government to take action to address its fiscal deficit, now at 3.3% of GDP, to avoid an "economic crisis of greater dimensions."

"El Salvador still has time take action allowing it to fulfill its obligations and avoid having to stop payments, which would cause an economic and financial crisis with regrettable consequences," said Abansa, adding that these actions must include a the settling of overdue accounts as well as transparency in the use and allocation of public funds.

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The association also cited credit rating downgrades as having made financing more expensive and said political parties urgently need to put aside differences to address the fiscal deficit, long-term financial planning and much-needed pension reform.

GROWTH DESPITE EVERYTHING

Abansa also had some good news to share despite the difficult operating environment, saying deposits grew 2.6% last year to US$10.6bn and loans advanced 5.3% to US$11.1bn.

The consumer loan segment stood out, expanding 6.4%, followed by business loans, which increased by 5.8%. Mortgage lending was more stagnant, growing 1.08%.

Net income for Salvadoran banks, however, did see a 10.2% drop last year to US$140mn.

Despite some deterioration, Abansa described indicators for solvency, asset quality and liquidity as "stable", where the banking sector's average capital adequacy ratio grew slightly to 17% from 16.8%, non-performing loans fell to 2.04% from 2.36%, and liquidity contracted to 30.9% from 32.3%.