Pint-sized Uruguay has successfully cleansed its banking system of Argentinian deposits and loans since the disastrous crash of 2002 and its banks are well cushioned and reserved. Yet, in spite of a rash of takeovers by large foreign banks, the sector remains curiously undynamic. Levels of lending are trifling, particularly to corporates, capital markets are moribund and the development of long-term lending is painfully slow.
During the second term in government of the left-leaning Frente Amplio party, which retained power in March, the government will be legislating to nudge banks to serve more of the population and lend more to meet long-term infrastructure needs and social objectives. However, it needs to tread carefully not to deter foreign banks altogether, for whom tiny Uruguay is not a major priority.
