He Central Bank of Uruguay (BCU), through the Superintendence of Financial Services (SSF), decided to increase the countercyclical capital buffer (CCC) 0.25% to reach 0.75% as of July 2024, at a time when a change in the country’s economic cycle is projected.
The decision, according to the entity’s statement, is based on the increased clock of the cycle, which indicates that the Uruguayan economy is entering a weakening phase after experiencing a recovery phase in 2021 and 2022, consolidated by the growth of exports and investment.
In its assessment of the risks faced by the Uruguayan financial system, the Superintendence of Financial Services highlights both the effects of the drought -which led to a downward correction of the projection of GDP growth for this year- as well as the fall of the commodity price and the uncertainty generated by the contractive policy of the United States Federal Reserve (Fed).
The impact of the exchange difference with Argentina in commercial activity and employment on the coast is also mentioned.
The Central Bank of Uruguay warns about the possibility that the United States, the main world economy, enters into recession. “It implies greater market and credit risks in the financial markets of developed and emerging countries in the medium term,” said the communication, which admits that the Uruguayan economy, “with a partially dollarized credit market” could see those risks amplified.
The BCU technical report also highlights the increase in credit in dollars and pesos as one of the reasons for raising the countercyclical capital buffer. Although he clarifies that he accompanied the recovery of the economy, he warns that there is a significant percentage of companies with debts within the financial sector which, according to the Internal Audit of the Nation (AIN)is 5%, which maintains financial costs above 50% of the sales margin.
Source: Ambito
