Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
AmericasOctober 5 2008

Longer tenors and more microfinance diversify portfolios

The private sector is showing its confidence in Uruguay’s revitalised banking system by investing more, and a robust deposit base is allowing banks to offer their corporate clients longer tenors. By John Rumsey.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Investments by the private sector are growing fast, thanks to the much stronger banking system in Uruguay that has emerged from the past five years of economic growth and sound macroeconomic policies pursued by the Uruguayan government.

It bears restating that Uruguayan banks have been garnering deposits faster than they have been granting credit as they rebuild their asset base. That solid base implies scope for plenty of credit growth in coming years.

Furthermore, it is the local depositor that has dominated this process and that will allow “local banks to fund local projects with local money”, explains Fernando Calloia, president of Banco República.

This is a far cry from the pre-2002 situation, when Argentine depositors made up some 40% of the deposit base. The move to develop the local profile of deposit-takers will clearly also reduce systemic risk.

This solid deposit base is also rapidly enabling banks to issue longer tenors and work with smaller companies.

“Banks are starting to be able to provide loans of longer tenor of five- and even 10-year tenors, to their corporate clients, something that would have been very difficult a few years ago,” says Mr Calloia.

The competitive nature of the country’s banking system is ensuring a good deal for corporate clients, with highly attractive lending rates that can be as low as 5%. This extension of tenors for corporate clients should also lead to the development of a similar long-term credit market for consumers, with the focus on the mortgage market.

Smaller businesses

At the same time as extending tenors, Uruguayan banks are also looking to lend more to small and medium-sized companies and in microfinance. Mr Calloia, for one, is excited by the potential growth in this sector. He expects his bank to create a new unit to finance microcredit imminently.

This is important because the diversification of the Uruguayan economy is taking place in sectors that are rich in smaller companies, such as tourism and service industries. The key is to lend in a way that is both socially and environmentally responsible and sustainable, Mr Calloia believes.

To prove its determination to take on global best practices, Banco República has committed to follow the Equator Principles, ensuring that projects to which it lends comply with IFC Performance Standards and EHS Guidelines.

Keep it simple

The future for Banco República in the corporate sector will primarily be through lending with the emphasis on controlling costs and keeping administrative processes simple. Overseas banks will find niches in supplying a wider range of products to foreign firms, thinks Mr Calloia.

As well as extending the length of credit and thereby helping companies to recuperate from the after-effects of the crisis, the Banco República is working with the Inter-American Development Bank on creating an investment bank for Uruguay. “There is an immense receptivity on the part of multilateral banks to develop projects in Uruguay,” says Mr Calloia.

Was this article helpful?

Thank you for your feedback!

Read more about:  Americas , Uruguay