Banks: Liquidity Surplus in Nicaragua

Because of decreasing demand for credit since April last year, banks in the Nicaraguan plaza are filling up with money they can not place in the market.

Wednesday, June 26, 2019

According to estimates by the Nicaraguan Foundation for Economic and Social Development (Funides) based on official figures, so far this crisis has boosted the liquidity of banks, increasing the proportion of available money that financial institutions have with respect to their obligations to the public, going from 31.76% reported in March 2018 to 46.73% recorded in May this year.

See "Companies Struggle Through the Crisis reviews that "... Prior to April of last year, the highest level of liquidity of Nicaraguan banks was recorded in December 2009, when it accounted for 41.03 percent of their total deposits. Since that year, that level had not been surpassed until March of this year, when it stood at 43.97 percent and from May onwards it is on its way to fifty percent."

The economist Luis Murillo explained that "... because of the socio-political crisis that the country is going through, confidence has been deteriorating and, therefore, the banks have taken their measures. Depending on how a country's confidence is, it can be lent or not, and also different interest rates can be established, Nicaragua since April 2018 has deteriorated its main asset, which is confidence, and since there is a deterioration in the country's confidence, almost no one is being given credit."

According to the latest official data from the Central Bank of Nicaragua (BCN), the Monthly Index of Economic Activity (IMAE) in January and February 2019, before taxes, contracted by 5.8 percent compared to the same period last year. Economic activity has been reduced for 10 months in a row.

Also see news related to the crisis in Nicaragua.

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More on this topic

Bank Loans become Less Expensive in Nicaragua

September 2020

Between May and June of this year, the average lending rate of commercial banks has fallen from 11.52% to 10.28%, a drop that is explained by the high level of liquidity of the banks and the low placement of credits.

The pandemic that caused the outbreak of covid-19 has hit the financial system, since due to the current market conditions, the active rates have come down between the months of May and July.

Credits in Nicaragua: Crisis on the Rise

May 2020

Given the political and economic crisis affecting the country since April 2018, a scenario that has combined with the crisis of covid-19, the loan portfolio increased from $5,172 million in March 2018 to $3,404 million at the end of April 2020.

According to figures of the Superintendence of Banks and Other Financial Institutions (Siboif), in the first four months of the year a decrease in the credit portfolio is also reflected, since it went from $3.578 million reported at the closing of 2019 to $3.404 million recorded in April 2020, representing -5% variation for the four-month period in question.

Banks Prefer to Save Resources

December 2019

In the midst of the uncertainty generated by the political and economic crisis, banks in Nicaragua have opted to reserve their resources, a situation that is evident in the increase in the liquidity of the system.

According to data from the Superintendencies of Banks and Other Financial Institutions, between March and October of this year, the liquidity of banks as a function of deposits went from 32% to 45%.

Fitch Ratings Special: Central American Banks

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From abundance to scarcity: Challenges faced by Central American banks in an environment of tight liquidity.

After having been hit hard by the US mortgage crisis in 2008, large US and international banks have considerably weakened, in some cases escaping from bankruptcy only thanks to strong government intervention.

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