LatinFinance - November/December 2013 - 53

Jun-2013

Apr-2013

Feb-2013

Dec-2012

Oct-2012

Aug-2012

Jun-2012

Bolivia's banking system has been
transformed by its government over the past
few years. That's both good news and bad.
Good in that opportunities are still plentiful
if the economy continues to grow. But profits
have suffered: the country's largest banks'
return on equity (ROE) has fallen from
around 20%, to 11%, between 2006 and 2011.
Agents for change have come in two
forms. The first was a new tax system that
came into force at the end of 2011. The
second is a new set of financial services laws,
approved in August, which were set to come
into effect in November. And then there are
market forces.
"The competition is tougher than it used
to be," says Fernando Albano, an analyst at
Moody's. "This hit profitability in the whole
system."
In 2011, the government increased a tax
on profits for the highest-earning banks,
from 25% to 37.5%. The higher rate applies
to banks with a ROE above 13%. Those with
ROE under 13% pay 25%. This has lowered
profitability for all the large banks, and
particularly for Banco Mercantil Santa Cruz,
the longtime largest and most profitable in
the system.
Banco Nacional de Bolivia had $1.99
billion in assets as of mid-year, second in
the country's banking system. Over the past
years it has nearly caught up with Mercantil
Santa Cruz, which at $2.32 billion still
accounted for about a fifth of the country's
banking assets.
BNB's profitability slumped in the first
half of 2013. Return on equity fell from 19.3%
at the end of 2012, to 11.7% in June. Yet that
was still above a system average that had
plummeted from 17.6% to 11.4% over the
same timeframe.
"The main challenge for Banco Nacional
de Bolivia, and for the Bolivian financial
system as a whole, will be to maintain the
healthy pace of growth of the last years,
while adapting to the new regulatory

Apr-2012

Bolivian lawmakers have
ushered in changes that
have hurt banks' profitability. More pain is in store

Feb-2012

Banco Nacional
de Bolivia

"The whole regulatory environment is
changing," Albano says. "The government
has been working for this law for more than
a year. This is going to change the way banks
do business in Bolivia. Next year may be more
difficult for them."
Bolivian banks' profitability and net interest
margins had been sound since 2006 before
beginning to decline in 2012 amid intensifying
competition and the higher tax burden,
according to Moody's. That tax on earnings
was followed last year by a 0.7% levy on all
foreign exchange transactions.
The new financial services law will allow
the government more sway over the financial
system. The government may determine
interest rates, and a minimum portfolio
allocation, for lending to the productive
sector. Similarly, officials can determine the
interest rates to be applied to social housing
loans and the minimum amount of lending in
that area.
The law also gives the government the
power to set minimum interest rates for
deposits. A new method of risk-based
supervision is also in the works, which will
create a governing financial stability board
and a consumer advocacy body for the
financial sector.
BNB's assets have grown at more than
10% annually in the past six years. The loan
portfolio and deposits have increased at a
similar pace. Key to this growth was BNB's
entry into lending to small and medium
sized enterprises in 2007, says Bedoya.
It is not all grim ahead. Government
intervention could mean more participants
in the banking sector and more potential
customers. Bedoya says he expects an
expansion of geography and services.
GDP growth would
encourage this.
The government takes a bite
"We believe that
Profitability of Bolivian banks (monthly ROE)
the opportunities
30%
for Bolivia's banking
BNB
System
sector are diverse,
25%
and our focus is in the
BMSC
small and medium
20%
enterprise segments
of the economy, for
15%
they have shown very
10%
sound development
indicators," Bedoya says.
5%
"Corporate banking is a
line of business that we
0%
also presume will have
very interesting progress
due to the economic
expansion and
Source: Autoridad de Supervisión del Sistema Financiero
stability." LF

environment," says BNB chief executive
Pablo Bedoya.
"Banks in Bolivia are going to have to
intensify investment in expanding branch
and office networks, keep improving their
electronic transaction systems and design
new lines of products and services."
However, Bedoya says the enactment
of the new financial services act, the Ley
de Servicios Financieros, will imply new
challenges that have yet to be properly
identified and analyzed in detail, since
many of the provisions still need further
regulations and guidelines.
Working in everyone's favor is that the
Bolivian economy is in "very good shape",
he says. It is set to grow around 4% or 5% a
year for the next few years, which means the
financial system should continue to grow
above those levels.
The Ley de Servicios Financieros limits
banks' margins, introduces more controls
and directs banks to increase the availability
of credit to the housing and so-called
"productive" sectors - cattle raising,
forestry, oil, gas, mining, manufacturing,
electricity and construction.
The new measures will hurt banks'
profitability by compressing net interest
margins, and potentially shifting banks' asset
allocation models toward riskier sectors,
which will negatively affect asset and credit
quality, according to Moody's.
It replaces a 1993 law that aimed to
stabilize a system hit by crisis. President
Evo Morales' government argues that the
old law was designed with the success of
the banks in mind, and its intention with
the new law is to focus on the protection of
customers.

Dec-2011

BANK OF THE YEAR BOLIVIA

November/December 2013 - L ATINFINA NCE.COM 53
http://www.LATINFINANCE.COM
LatinFinance - November/December 2013

Table of Contents for the Digital Edition of LatinFinance - November/December 2013
