IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Uruguay. The staff report reveals that the banking sector in Uruguay is small relative to the size of the economy. The results of this exercise highlight that the authorities considered that the financial system was stable and well-supervised, with limited financial stability risks.
The staff report reveals that the banking sector in the country is well-capitalized, but bank credit remains weak. With the regulatory capital to risk-weighted assets ratio increasing since December 2015, the banking sector has comfortable buffers. Maintaining the stability of the banking sector is a priority. Banks’ operating costs are high; non-performing loans have risen; and bank profitability has declined in the wake of the peso appreciation in 2016 (since most banks were long in U.S. dollars). Although non-performing loans have increased in the last few years, they remain moderate, at less than 4%, and are covered by provisions and excess capital.
Nonetheless, stability risks to the banking system remain limited, as evidenced by the authorities’ stress tests, and are supported by rising capital-asset ratios. Supervision should continue to closely monitor banks’ exposures, assisted by the implementation of the International Financial Reporting Standards (slated for 2018). The recent steps to implement Basel III—including the phased introduction of the 2.5% capital conservation buffer, capital surcharges for larger banks, and of liquidity ratio regulations—are useful risk-mitigation measures. Moreover, the authorities created a fintech working group to analyze Uruguay’s noticeable position in this sector. The authorities also highlighted their six-month “e-peso” pilot project, for digital currency issued by the central bank.
The selected issues report investigates the impact of exchange rate movements on private consumption in Uruguay and examines next steps for promoting de-dollarization in the country.
Keywords: Americas, Uruguay, Banking, Financial Stability, Basel III, NPLs, IMF
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.