He Uruguayan private banking system offers a level of credit “relatively low” despite having “high liquidity”, since the financial intermediation margin is lower than the return on alternative investments, thus discouraging loans.
The conclusion follows from a recent technical report prepared by the Center for Studies of Economic and Social Reality (Ceres), focused on the challenges that arise in Uruguay when increasing bank credit.
Ceres affirms that despite having favorable institutional conditions and a high interest rate spread in international comparison, the problem of low profitability in financial intermediation persists in private banking.
What are the elements that slow down bank credit in Uruguay?
The main obstacles to credit found in the Uruguayan private banking system are the high operating costs in tax, operational and regulatory matters.
In tax matters, Uruguay It is practically the only country in the world where banks must face the Wealth taxand the no less uncommon tax on banking assets, which are added to the rest of the taxes, something that significantly increases costs.
At the operational level, the international comparison shows that the country must face high costs, where expenses per employee are above average and compensation is also expensive.
At the same time, in regulatory terms there are capital requirements higher than international standards, which coexist with limited legal rights for creditors.
According to the Ceres report, in order to promote the development of bank credit “it is imperative to address the challenges related to high operating costs and regulation,” since “reducing these obstacles would allow financial intermediation to prosper and, in turn, contribute to economic development.”
Source: Ambito
