Past due loans increased to $325 million, 22% more than the same period of 2009, when they summed $266.2 million.
Loans for consumption, home buying and commerce are the ones experiencing the highest levels of overdue payments, according to data from Abansa (Banking Association of El Salvador).
“The overdue loans index rose to 3.76%, up from 2.93% in the same period of 2009”, reported Elsalvador.com.
Private banks will present recommendations and observations to improve access to credit for SMEs.
Armando Arias, president of the Salvadoran Banking Association (ABANSA), explained that after a crisis all regulation must be reviewed.
“We are conducting a global and integral analysis of credit for SMEs, from the moment they request a loan to when they pay, either willingly or through other mechanisms”, reported Laprensagrafica.com.
During 2009, the banks’ credit portfolio lost $583.5 million; it is the first reduction in 5 years.
By the end of 2009, banks had $8.6 billion in loans, down from $9.2 billion at the end of 2008.
“Armando Arias, president of the Salvadoran Banking Association (ABANSA), explained that the contraction is relative higher than the performance of the economy, which shrank 3.3%”, reported Laprensagrafica.com.
The Banking Association remarked there is room for improvement in the credit card law recently approved by Congress.
Armando Arias, head of the Association, argues the law needs to better define how to calculate effective rates.
Laprensagrafica.com reported: "The deadline for credit card issuers to modernize their information systems is another point in need of clarification, argued Arias.
Approved loans fell 6.5% in the past 12 months (August 08 - August 09); loans for the productive sector where the most affected.
Experts agree in blaming the global economic crisis for this reduction in credit.
The President of the Central Bank explained that "...banks just reflects 'the economic deceleration' ... It is a lack of confidence in an economic recovery capable of reactivating demand, and payment capacity", published local newspaper Elsalvador.com.
The liquidity indicator was 39.8% in July 2009, according to data from the Salvadoran Banking Association.
The legal lowest acceptable level, set by the Central Bank of El Salvador (BCR), is 17%.
"Victor Ramírez, superintendent of the financial system, stated that excess liquidity is due to many sectors not accessing credit", reported Laprensagrafica.com. "Banks are currently assessing the level of risk in the country".
Up to June 30th, banks reported $33.7 million in earnings, 38.2% less than the same period of 2008, when they brought home $88.2 million.
Marcela Jiménez is the executive director of Abansa, the Banking Association of El Salvador. She assures local banks are committed to their projects in the country.
"Return over equity was 3.10% up to May 2009, while it was 14.72% in the same month of 2008", reported an article in Elsalvador.com.
According to ABANSA, the proposed maximum 22% rate would affect credit cards with a $1.000 limit or less, 59% of the market.
The Salvadoran Banking Association, known as ABANSA, warned of fewer supply of credit cards with less than $1.000 limit, if the credit card law proposal being studied is approved. With the 22% maximum interest rate, according to them, banks would not be able to cover the costs of providing this service for small amounts, as operative and irrecoverable costs increase significantly in this market segment.
A credit card law proposal being studied by the Legislative Assembly would set a maximum interest rate of 22%.
Both the Banking Association of El Salvador (ABANSA), and the National Private Enterprise Association (ANEP), support the creation of a credit card law, that would provide greater transparency to the market, but disagree in regulating interest rates.
Salvadoran home builders welcomed President Funes's announcement, that turns into reality the long awaited anti crisis plan for the sector.
Funded by the government and the private sector, the global housing project aims to build 25.000 homes, generating over 100.000 direct and indirect jobs.
The first stage of the plan will see investment for $165 million, for the construction of 5.800 homes.
Embargoes enforced by banks for non payment of debts have caused the Salvadoran Assembly to convene the financial system trade unions.
Representative Alejandro Dagoberto Marroquím called for the Financial Committee of the Legislative Assembly to suspend embargoes through transitory measures.
In an article in Elsalvador.com, Guadalupe Hernández writes: "Representative Marroquín, who proposed the motion, explained that the transitory measure would suspend, for a 12 month period, embargoes executed by financial institutions on the ground of non payments ... The proposals did not reached a consensus, so representatives decided to convene ... the spokespersons of the financial system, to obtain more details on the topic".
The export sector registered a 15% fall between January and April and continues to have difficulties in getting financing.
Medium and small sized businesses are the most affected, according to the Executive Director of the Corporation of Exporters of El Salvador (Coexport acronym in Spanish), Silvia Cuellar.
Patricia Palma writes for Elsalvador.com: “The President of the Central Reserve Bank (BCR acronym in Spanish), Carlos Acevedo, also pointed out the difficulties being experienced by those companies ‘that aren’t big enough to access credit from comercial banks, nor are they small enough to recieve the support of the Mortgage Bank.’ In order to meet thier needs, the Central Bank is working to create a system of guarantees that work ‘like a type of cosigner,’ explained Acevedo,…”
Commercial Banks have authorized short term loans to builders for the construction of 5000 homes.
In response to the ‘anti-crisis plan’ announced by President Mauricio Funes on Thursday June 18th, the Salvadoran Banking Association (Abansa) will be authorizing construction loans for $50 million.
According to Elsalvador.com, Abansa’s President Armando Arias said, “the plan is still in the internal evaluation phase.
The new offer increases the quota for sugar from Central America that can enter the European Union without tariffs to 100,000 tons.
According to La Prensa Gráfica, the president of the Sugar Association of El Salvador, Armando Arias, indicated that "the Minister of the Economy said publicly that he knew–off the record-that the EU might offer up to 100,000 tons to Central America.”