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Banking in Bolivia: Expansion under the sword of Damocles

Banking in Bolivia: Expansion under the sword of Damocles

Bolivia's financial system has grown significantly in recent years. Deposits and credits have been breaking records year after year and default rates remain low. The growth of the economy, high liquidity, and the expansion of the microfinance segment are also driving banking profits. But the government, which has already shown signs of wanting a less profitable and more redistributive banking system, has been implementing higher taxes since 2011 in order to capitalize on what it considers extraordinary income. Additionally a new financial services law was enacted in August which has led to caps on lending rates for certain sectors, floors for retail deposit rates, and mandatory allocation of a portion of the loan portfolio to productive projects and social housing, among other changes.


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Growth
Bolivia’s financial system has experienced rapid expansion in recent years. Unlike the energy, mining, and infrastructure sectors, where President Evo Morales’s government implemented a series of nationalizations, financial institutions have enjoyed favorable conditions for business growth since 2006. Growth in deposits and loans has been breaking records every year and default rates remain low.

Lower profitability
The growth of the economy, high liquidity, and the expansion of the microfinance segment are the factors driving the profits of financial institutions in Bolivia. But the government has already shown that it wants a less profitable and more redistributive banking sector, and to meet this goal, it has been increasing taxes since late 2011. Although profitability promises to remain at high levels, analysts expect it to fall somewhat in the coming years.

New legislation
Last August, the new financial services law was enacted. This law includes caps on lending rates for certain sectors, floors for retail deposit rates, and mandatory allocation of a percentage of the loan portfolio to productive projects and social housing, among other changes. The government’s control of the financial stability board, the agency that has 90 days to define the specific regulations and guidelines of the new law, is also a matter of concern in the financial sector.

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