| Abstract: |
In recent years, financial depth ratios in Uruguay have trended upwards,
although without reaching the levels seen prior to the crisis at the start of
the century. The ratio of credit to GDP in 2010 was near 18%, while the ratio
of deposits exceeded 33%. However, Uruguay is still lagging behind the
regional average, above all in the ratio of credit to GDP, and it is even
behind a number of countries with lower levels of per capita income. By
segments, credit for household consumption in Uruguay falls far short of the
levels observed in more developed countries like Chile (11% of GDP) and Brazil
(15% of GDP), as such credit amounts to only 3% of GDP. The segment of
mortgage loans is a bit more developed - although still at low levels - at 7%
of GDP. A more significant lag can be seen in corporate credit, which amounts
to only 12% of GDP, whereas in countries like Chile or Brazil, it amounts to
52% and 26% of GDP, respectively. Moreover, although access to financial
services in Uruguay stands at approximately the regional average, banking
infrastructure - particularly in terms of ATMs and POS - is below the average
of Latin America, as is the use of electronic means of payment. The underlying
thesis of this study is that banking institutions must assume the role of
leading a serious process of increasing banking penetration in the country.
From a broad technical perspective, an understanding exists of the role played
by certain non-bank financial institutions, such as savings banks, mutual
societies, cooperatives and non-governmental organisations, in reaching
specific population segments. However, such non-bank institutions face a
number of structural limitations in becoming agents for change in a banking
penetration process, such as the financing capacity and cost, economies of
scale, development in risk management, professional staffing and broad
supervision by regulatory bodies, among others. Our report discusses cases
such as those of China, Bangladesh and India, where significant efforts have
been made to develop non-bank institutions to deepen the coverage of financial
services, but which ultimately face a number of obstacles. Nor should we
forget the financial failures of such non-bank institutions in Latin America.
Even recent experiences in Europe (such as Spain and its savings banks) show
that the risks of such institutions always make themselves felt when they
become too large. Hence, this analysis has sought to provide recommendations
for driving deepening banking in Uruguay, focusing on both institutional
factors and those inherent to the banking sector that condition the
development of savings and credit markets. With regard to the institutional
environment, two measures are identified that would benefit the banking
penetration process of the country: strengthening the scope of information to
which risk centres have access and reducing the time and cost of registering
properties and guarantees. Development of the institutional pillar is
essential for assuring creditors that borrowers will repay loans. Factors
intrinsic to the banking sector include measures to boost access of lower
income segments to financial products and services. Options are considered to
enable individuals to deepen their use of the banking system to meet their
transactional needs, such as making it mandatory for employers to pay wages
through the financial system or implementing "low cost automatic enrolment
accounts". Both measures would be strengthened by proposals for tax incentives
for payments made with debit cards through VAT discounts, and by promotion of
the banking correspondent model. Given the wide margin for expanding corporate
credit, it is important to incentivise the penetration of loans to MSMEs, as
the vast majority of the 114,000 enterprises in Uruguay are small and
medium-sized and nearly a third of them do not use banking services. Bank
financing could enhance enterprises' productive capacity and help grow their
business and profitability, thus incentivising greater formalisation. One way
of beginning to provide financing to these enterprises might be factoring, as
financing through discounts on trade invoices is commonly known.One important
item to be discussed as part of a comprehensive reform is the high costs borne
by the banking sector in Uruguay, as the consequence of regulations that
directly affect it. Several studies - particularly, a recent one by the
International Monetary Fund (2011) - indicate that labour costs have the
largest impact on the banking sector's financial results. The same report
points out that this factor has limited the potential for growth of the
banking sector in Uruguay and incentivised the appearance of non-bank
financial intermediaries that are subject to less stringent regulation than
the banking sector. Thus, it is important for the country's lawmakers to bear
in mind these problems and be aware of the risk that such "extra costs" will
limit the capacity of the banking sector to expand its services to broader
segments of the population.According to the estimates of BBVA Research based
on a statistical model of credit growth and potential economic growth, if
Uruguay makes no reforms, the level of credit would increase from 18% of GDP
in 2010 to 32.5% of GDP in 2020, owing to the demand generated by growth of
the economy and to factors of convergence in financial development. The
recommendations set forth in this study are conceived to be implemented
jointly. It is estimated that in a conservative scenario, implementation of
the proposals will lead to banking penetration, measured as the credit-to-GDP
ratio, of 53.9% of GDP in the next ten years, whereas in a more optimistic
scenario, it could exceed 68.4%. The foregoing is without taking into account
the impact of other measures that could contribute to reducing informality in
Uruguay. Hence, the impact could surpass 76% in a best-case scenario. |