Political Risk Latin America Blog @PolRiskLatam

Ecuador/Bolivia banks: Flying high, for now

Posted in News and Articles, Political Risk by politicalrisklatam on March 17, 2011

by The Economist Intelligence Unit, March 16th, 2011.

Business is booming for domestic banks in Ecuador and Bolivia, but the growth is built on somewhat shaky foundations.

In Ecuador and Bolivia, banks often make headlines when they are at the business end of scathing comments by government officials. Relations can be tense, as both governments have taken harsh—some would say punitive—regulatory actions in recent years. Foreign financial institutions have been quietly leaving the two countries, with Citigroup exiting Bolivia last year and Lloyds selling out in Ecuador. The two Andean markets are now almost entirely dominated by local financial groups, an anomaly among the region’s smaller markets.

Yet despite the purported economic radicalism of the governments of these two countries—reflected by their admiration and close ties with Venezuelan President Hugo Chávez—the prospects for economic growth in Bolivia and Ecuador are solid, and banks have been expanding their credit portfolios at near record rates. Simply put, banks are booming.

The question is whether banks will be able to turn rapid expansion in demand for financial services into higher profits. Government actions are already pinching profits, and a general climate of political uncertainty makes the earnings outlook murky. (continue reading… )



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