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
News

PRA Finalizes Reporting Amendments to Pillar 2 Liquidity Framework

PRA published the final Policy Statement PS13/19 on regulatory reporting amendments and clarifications to the Pillar 2 liquidity framework for banks in UK.

June 17, 2019 WebPage Regulatory News
News

IAIS Consults on Revisions to IAIS Supervisory Material

IAIS has launched a public consultation on revisions to the IAIS supervisory material.

June 14, 2019 WebPage Regulatory News
News

IMF Paper on Implementing Prudential Standards in Developing Economies

IMF published a working paper that provides practical guidance on how developing economies, including non-Basel Committee member countries, could incorporate international standards into their prudential framework.

June 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for June 2019

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

June 14, 2019 WebPage Regulatory News
News

FSB Releases Update on Meeting of Regional Consultative Group for Asia

FSB published an update on the meeting of its Regional Consultative Group (RCG) for Asia.

June 14, 2019 WebPage Regulatory News
News

BoE, FCA, and MAS Announce Collaboration on Cyber Security

MAS and UK financial authorities (BoE and FCA) announced that they will work together to strengthen cyber security in their financial sectors.

June 13, 2019 WebPage Regulatory News
News

CBIRC Advisory Committee Holds Meeting, Discusses Regulatory Issues

The first meeting of the International Advisory Committee (IAC) of CBIRC was held in Shanghai from June 11 to 12, 2019.

June 13, 2019 WebPage Regulatory News
News

ECB and EIOPA Publish Common Minimum Standards for Data Revision in EU

ECB and EIOPA published the common minimum standards for supervisory and statistical reporting data by the undertakings in EU.

June 13, 2019 WebPage Regulatory News
News

IMF Reports on 2019 Article IV Consultation with Czech Republic

IMF published its staff report and selected issues report under the 2019 Article IV consultation with Czech Republic.

June 13, 2019 WebPage Regulatory News
News

APRA Response to Proposal on Revisions to Capital Framework for Banks

APRA published a paper in response to the first round of consultation on proposed changes to the capital framework for authorized deposit-taking institutions.

June 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3252