General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
June 07, 2018

IMF published its staff report and selected issues report in the context of the Article IV consultation with El Salvador. Directors noted that El Salvador’s banking system is well capitalized and very liquid. Recent credit growth to the productive sectors has been encouraging, but further room for healthy credit expansion remains. Directors acknowledged the recent progress made in risk-based and cross-border supervision. To further improve the resilience of the banking sector, they encouraged the authorities to accelerate the adoption of the crisis management and bank resolution draft law, to strengthen the financing of the lender of last resort facilities, and to create a bank liquidity fund. Directors encouraged continued efforts to strengthen the AML/CFT framework.

The staff report highlights that the banking sector appears solid and credit growth is moderate, but sovereign risk concerns and declining margins are affecting the (mostly foreign-owned) banks. The banking system’s capital adequacy ratio (16.6%) remains well above the required minimum of 12%. The nonperforming loan ratio is 2% and problem loans are amply provisioned. However, abundant liquidity, including due to the lack of viable investment projects, and a declining net interest spread continue to dent bank profitability. Credit growth is moderate at 6% in real terms. The authorities are implementing AML/CFT measures and maintain international cooperation with the U.S. Department of Treasury.

The report also reveals that progress has been made in risk-based supervision and financial inclusion by approving a new law in January 2017. The authorities should continue to strengthen the AML/CFT framework in preparation for the next round of assessment under the CFATF, in 2022. Efforts could be intensified in the areas of systemic liquidity (adequate funding of lender of last resort), banking resolution and crisis management procedures, cross-border supervision, and data availability. These steps would help promote a sound banking system and expansion of credit to productive sectors, including by limiting excessive liquidity holdings.

The selected issues report contains a feature estimating the credit gap, defined as the difference between the credit-to-GDP ratio and its long-term trend. In the case of El Salvador, the estimated threshold is equal to 1.43%, lower than the 2% Basel III micro-prudential rule, which triggers counter-cyclical capital buffers. This is currently positive, but declining and below the critical 2% threshold recommended by Basel III micro-prudential guidelines. The assessment concludes that there is still scope for financial deepening without excessive risks for financial stability. Furthermore, an econometric assessment shows that the recent credit growth is not excessive and is aligned to fundamentals.


Related Links

Keywords: Americas, El Salvador, Banking, Article IV, Capital Adequacy, Resolution Regime, IMF

Related Articles

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News

EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2

The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.

April 16, 2019 WebPage Regulatory News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 16, 2019 WebPage Regulatory News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News

PRA Seeks Input and Issues Specifications for Insurance Stress Tests

PRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.

April 15, 2019 WebPage Regulatory News

PRA Finalizes Policy on Approach to Managing Climate Change Risks

PRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).

April 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for April 2019

EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.

April 12, 2019 WebPage Regulatory News

EIOPA Statement on Application of Proportionality in SCR Supervision

EIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.

April 11, 2019 WebPage Regulatory News

FED Updates Form and Supplemental Instructions for FR Y-9C Reporting

FED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.

April 11, 2019 WebPage Regulatory News

OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR Disclosures

OSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.

April 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2920