Jorge Barboza, economist from the Executive Secretariat of the Central American Monetary Council (known as SECMCA in Spanish), analyzes progress and remaining actions to be taken toward Central American financial supervision and regulation.
"Regionalization of the various financial groups is becoming reality in Central America. Ignoring it or acting as though it didn't exist is impossible because it becoming more and more important. As a result, effective cross-border supervision will be key to the region's future financial stability. While national banking laws have been modernized in recent years, this has not been coordinated regionally leaving significant differences in standards of regulation. This can lead to regulatory loopholes and financial system vulnerability".
El Salvador's banking system exhibited moderate growth in 2007, primarily aided by a continued increase in consumer loans and mortgages, as well as faster commercial loan growth, according to a Fitch special report published today, titled 'Salvadoran Banks: Annual Review and Outlook'.
In 2007, El Salvadoran banks' total assets expanded by 11.4% in nominal terms (5.8% in real terms), while overall net profits declined by 12.4%, due to higher provisions. Additionally, non-performing loans increased to 2.1% of total loans as of December 2007 (versus 1.9% in 2006), despite significant non-performing loans throughout 2007. However, loan loss reserves appear to be adequate and relatively stable in terms of both non-performing loans (120%) and total loans (2.5%).
Non-banking companies have been allowed to provide financial services on behalf of established banks.
The preamble to the Agreement states that "the hiring out by banks of customer service networks for the provision of certain services and operations on its behalf, known as non-banking correspondents, has been an effective channel with which a greater depth of financial services has been reached, allowing banks to operate in places where they do not have branches or ATMs and reduce transaction costs without incurring excessive risk.”
It has been announced that from March Costa Rican banks will be able to allow their customers access to the Central Interconnected System of Payments.
From a press release by the Central Bank of Costa Rica:
A new service has been developed called 'Pagos al Exterior (PEX)' (Foreign Payments), which will allow individuals and legal persons resident in the country, to send and receive transfers of funds to and from accounts in a financial institution located in El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The aim of the service is to provide a fast and secure technology platform for processing commercial payments and remittances in the region.
Fitch Ratings has conducted analysis on the hidden potential of the banking systems of countries in the region.
The prevailing economic environment in Central America is forcing banks to preserve and enhance profitability. The performance of financial systems continues to face pressure from the relatively high credit costs related to the high proportion of loans granted to individuals and small and medium enterprises.
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