changed its outlook on the Bolivian banking system to negative, from
stable, reflecting rising risks from new government policies, says
Moody's in its new report "Banking System Outlook:
and 2015, fueled by high prices for commodities exports and supported by
prudent macroeconomic policy management. But
policies have heightened risks to bank profitability, asset quality and
capital, says the rating agency.
"The new regulations dictate lending caps, direct lending to specific
industries and constrain fee and commission income," says Fernando
Albano, a Moody's analyst and author of the report. "This will reduce
bank earnings, and may lead to a decline in asset quality as investors
seek profitability in higher-risk areas."
Government policies have also created uncertainty over future stability
of deposit fundingÂ€”private pension funds are currently 70% of total term
depositsÂ€”if the public social security institution created in 2012
eventually replaces private pension funds, creating the risk of a change
in the system's deposit allocations says Moody's.
However, Moody's says that
boosted purchasing power and repayment capacity for consumer credit, and
expanded credit demand; a growth opportunity for the financial system.
In addition, recent positive developments support creditworthiness in
volatility in the event of currency devaluation. Liquidity remains high,
and banks are well-capitalized with an average 10.7% Tier 1 ratio as of
There is a high probability that Bolivian banks can count on systemic
support, says Moody's. The country's lower financial dollarization will
enhance the effectiveness of monetary policy, and that the relatively
small size of the banking sector relative to the government's available
resources means that authorities have the capacity to support banks if
needed, says the rating agency.
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