Uruguay, where GDP growth last year hit a five-year average of 6.1%, is the envy of many larger economies in the region. Yet the greater dynamism in its economy reflected in its recent investment grade rating, however, has not yet translated into greater competition in its banking sector. While the likes of Santander and HSBC have units that have gained in size, the government bank still dominates the system.
With a share of assets above 43%, it is hard to ignore Banco de la República Oriental del Uruguay and its place in the country¹s system. It continues to dominate most areas of business, and has yet to be seriously challenged by any of the private banks.
The state-owned bank says its main strategy is to extend universal access to financial service offerings to every corner of the country. It is aiming to grow in the microfinance sector. Banco de la República has opened its first microfinance business República Microfinanzas a business specializing in products and services in the microfinance sector with operations starting in 2010 and generating since then, adding a large number of clients and volume of credits in the local market.
Assets under management were $12.07 billion pesos at mid-year, up from $11.38 billion pesos the same period last year, and representing 43% of the system. Deposits grew to $10.4 billion pesos versus $9.73 billion pesos. The bank has a 45% of market share in deposits.
The positive trends for Uruguay, and for Banco de la República look set to continue. Banking activity continues to grow along with the economy, Fitch says, and credit quality remains at historically high levels. Banking institutions are characterized by solid levels of liquidity and solvency.
The profitability of Uruguayan banks has not been as positive as other indicators, Fitch says. This is thanks to low international interest rates reducing margins, exchange rate fluctuations and inflation.
However, Banco de la República posted a return on equity of 28.1% for the 12 months though to June and return on assets of 2.9%, up from 12.5% and 1.4%, respectively from the corresponding period one year before. This compares to a 9.9% ROE and 0.8% ROA average for the system. LF