Salvadoran banking system withstood the impact of the 2020 crisis

Economy

Jose A. Barrera

Wednesday 3, March 2021 • 4:00 am

The Salvadoran financial system emerged well off the challenges brought by a 2020 marked by low economic activity associated with the covid-19 pandemic.

According to the analysis of the Salvadoran Banking Association (Abansa), at the end of the year, the sector had a net liquidity index of 39.5%, while the solvency index closed at 14.8%, above the minimum required by the regulator (17% and 12%, respectively).

The entity highlights that the banking sector closed 2020 with a coverage of more than 100% of the balance of overdue loans, and defines it as “a reflection of prudence and good risk management during the crisis.”

The performance is influenced, in part, by a significant increase in deposits, which have consolidated the sector amid the turmoil caused by the pandemic and the quarantines applied to reduce contagion rates.

The banks expect that in 2021 the activity will continue to be driven by the flow of remittances and increased demand for products in the US market.

“The confidence of customers in the solidity and solvency of the bank, even during the pandemic, is supported by the trend of growth in the balance of deposits, which -as of December 2020- reached $ 15,250 million”, Luz María said yesterday de Portillo, executive director of Abansa.

It is important to remember that the banks granted different financial reliefs to their clients with problems in the pandemic ”, Luz de María de Portillo, Executive Director of Abansa

The entity highlighted in its analysis of the fourth quarter of 2020 that at the end of the year deposits reached 86% of the structure of funding sources of the banks of the system, followed by loans received from abroad with 9%, which is equivalent to at $ 1,606 million, while the securities remained with 5%, about $ 813 million.

Digitization

De Portillo also highlighted that 2020 marks a before and after in the banking digitization plan, a modality that was accelerated during the quarantines and mobility restrictions in force in several months of 2020.

$13,308MillionsIt was the balance of gross loans as of December, they grew 1.1% year-on-year.

11.5 %InterannualThe system’s deposit indicator grew in December.

$3.9MillionsThe banks of the system contributed to various social initiatives in 2020.

“One of the keys to mitigating the impact of the crisis caused by the pandemic was digitization and financial inclusion. The member banks of Abansa worked to encourage these measures, bringing banking closer to customers ”, he said.

A reflection of this is that transfers made by electronic means practically doubled the rate they had in December 2018, when they were around three million. In December 2019, months before the pandemic, transfers were around four million, while last December this modality reached six million.

“Electronic banking transfers in the financial system reached six million, increasing 55% year-on-year,” said De Portillo, adding that in the institutions, transactions between banks are part of Abansa, through the UNI system (formerly ACH). , grew at a rate of 245.1%.

The use of this system is maintained at no cost to users and is compatible with the mobile banking applications of the different entities, a tool that facilitates transactions.

Loans still waiting

Gross loans had limited growth in 2020. According to BCR data, the balance reached $ 13,308 million in December with a 1.1% internal growth, but they are equivalent to 52.7% of Gross Domestic Product (GDP).

Luz de Martía Portillo, president of Abansa, explained that from March to May the average year-on-year growth was 5.8%, and was influenced by a higher demand for loans to companies, specifically from MSMEs, a sector that represented a growth of 14.8%. % at the end of 2020.

At the end of the year, loans for productive activities rose 3%, but individuals and homes fell by -0.5% and -1.3%, respectively.

.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.