Challenges for Bolivia’s banks

Challenges for Bolivia’s banks

Bolivia’s economy is expected to grow 4% or 5% a year for the next few years, a welcoming sign for the country’s financial system, which expects to grow above those levels. However, competition has picked up and profitability has been squeezed thanks to new banking regulations.

“The main challenge for Banco Nacional de Bolivia [BNB], 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 environment,” BNB chief executive Pablo Bedoya tells LatinFinance.

The country’s largest banks’ return on equity (ROE) has fallen from around 20%, to 11%, between 2006 and 2011, according to regulatory data. The change has come in two forms. The first was a new tax system that came into force at the end of 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%.

The second is a new set of financial services laws, approved in August, which were set to come into effect this month. The new Ley de Servicios Financieros limits banks’ margins, introduces more controls and directs banks to increase the availability of credit to the housing and “productive” sectors — cattle raising, forestry, oil, gas, mining, manufacturing, electricity and construction.

The growth potential, and the fact that the economy is “in pretty good shape” provides some consolation, Bedoya said.

“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,” Bedoya said.

“The whole regulatory environment is changing,” said Fernando Albano, an analyst at Moody’s. “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.”

On the positive side, government intervention could mean more participants in the banking sector and more potential customers. Bedoya said he expects an expansion of geography and services. The GDP growth would encourage this.

“We believe that the opportunities for Bolivia’s banking sector are diverse, and our focus is in the small and medium enterprise segments of the economy, for they have shown very sound development indicators,” Bedoya said. “Corporate banking is a line of business that we also presume will have very interesting progress due to the economic expansion and stability.” LF