Financial System April 2014
Financial system Chart 1: Main institutions of Uruguay's financial system – April 2014
Financial Sector in Uruguay Uruguay has a stable, transparent, regulated and supervised financial system. There are no limits on capital inflow or outflow neither exchange control on foreign currency operations. Uruguay's financial system is composed of two public banks, ten private banks and a wide variety of non‐banking institutions, which have been established in the country. The institutional forms are: brokerage cooperatives, finance houses, offshore banking, managers groups of previous savings companies, consumer loan companies and currency exchange houses.
The state banking is formed by the Banco República (BROU) and Banco Hipotecario del Uruguay (BHU: Mortgage Bank of Uruguay). The first, operates as the State's commercial bank, contributing to the country's productive, economic and social development. The latter is exclusively dedicated to mortgage loans. Private banking is composed of ten banks from diverse origins, with a strong presence of European and south american banks. In Appendix I, the origin and dependence of the private banking institutions in Uruguay with their headquarters, is detailed. The following chart exhibits the number of institutions for each type that are present in Uruguay.
Type of institution Official banks Private banks Brokerage cooperatives Finance houses Offshore banking Financial services companies Rotating Savings and Credit Association Companies Consumer loan companies for amounts over 100,000 UR [readjustable units]
No. of institutions 2 10 1 5 5 26 2 14
Source: Central Bank of Uruguay April 2014
The financial system is regulated and supervised by the Central Bank of Uruguay (BCU: Banco Central del Uruguay) through the Financial System Regulatory Agency (SSF: Superintendencia de Servicios Financieros), taking as reference the standards of the Basel Committee on Banking Supervision in order to define the regulatory framework1. The SSF is aimed at ensuring the due protection of financial service users, promoting soundness, solvency and transparency of the financial system, as well as to keep it operating properly by focusing on efficiency and competitiveness. In order to achieve this, the SSF has a Financial Analysis and Information Unit for the prevention of money laundering. In addition, the BCU has a Risk Unit that consolidates the information furnished by financial brokers in relation to the credit history of borrowers, for the purpose of providing greater transparency and market control.
1
Regulations available at the Central Bank of Uruguay
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Financial system Uruguay has an attractive investment promotion system – Law 16,906 on Investment Promotion and Protection – and since 2008 there is an exclusive investor assistance center and an automatic, modern, transparent and efficient mechanism which benefits more companies and sets forth objective criteria for granting tax exemptions. Many financial institutions have submitted investment projects to the Commission for the enforcement of Law 16,906 (COMAP), aimed at invoking tax benefits conferred by Decree 2/0122. In the last 5 years, the amount of promoted projects exceeded US$ 50 million, in connection with various activities such as the expansion of the technological infrastructure of these institutions, the improvement of management and organizational transformation, new computing platforms, among others3.
1. Characteristics of the Uruguayan banking system Currently, the financial market is going through a moment of great solidity, liquidity and profitability. It is growing at high rate together with the economic growth of the country in the last years. One of Uruguay’s banking system characteristics is the high degree of concentration, in which the state banking has had throughout its history, a market share of over 30% of the overall volume of the banking sector. Moreover, as can be seen in chart 3, this concentration is also present within the private banking sector, where the two main banks account for approximately 50% of the total business volume of private banking.
Over the past years, merger and acquisition operations established in the country have further deepened this concentration and generated changes in the leadership of the private banking sector. This decrease in banking entities was followed by a reduction in the number of employees and branches. There are currently 324 bank branches in the country, considering public and private banks, employing over 8,000 people. Chart 2: Banking system's physical network of employees and branches. Year 2013 Area Total inland Montevideo (Capital city) Country total
Number of branches 185 145
Number of employees 2,139 6,415
335
8,554
Source: BCU.
In 2013, the business volume of the Uruguayan banking system grew by 9.7% with regard to the previous year, presenting a higher growth in granted credits than in liabilities. This growth was showed in a 12% credit clients increase as well as in a 9% depositors of the financial system increase. Within the private banks, Santander stands out with a growing rate above 18.3% and Itaú with 17.7% of the business volume, compared to 2012. Followed by BBVA and Nuevo Banco Comercial.
2
For further information visit: COMAP Resolutions available www.mef.gub.uy/comap_resoluciones.php
3
at:
2
Financial system Chart 3 – Business volume by institution. Amounts in US$ million and share %4. US$ Market Institution million Share
Results The gathered results of the banking system in 2013, showed an improvement over 2012 by US$ 194 million, with a total of US$ 491 million. The results of the private sector were the most outstanding, overcoming a year of loss in 2011, achieving a result of US$ 109 million in 2012 and consolidating itself in 2013. The three main private banks: Santander, BBVA and Itaú, took the 99% of this profit. The oficial bank BROU, generated earnings for US$ 290 million.
Banco Santander
6,633
Banco Itaú
4,730
BBVA
4,230
Nuevo Banco Comercial HSBC
2,747
Discount Bank
1,266
Banque Heritage
646
Citibank NA
605
BANDES
419
Banco de la Nación Argentina Private banking sub total Banco República Oriental del Uruguay Private banking + BROU
127
4% 3% 2% 1% 1% 0%
23,235
57%
The banking system rentability, measured in terms of net worth, increased 6.9 p.p in 2013, which represents a 19% boost.
17,635
43%
Deposits and Loans
40,870
100%
Deposits of the Uruguayan banking system are mostly concentrated in the private banking sector with a participation slightly over 50%, and have evolved into a higher proportion of deposits derived from residents and towards a lower dollarization. While in 2000, 35% of the deposits corresponded to non‐residents, by 2013 this percentage dropped below 15%. The pronounced fall, that can be appreciated in Graphic 1, is due to the recession the country went through in 2002 as a consequence of the Argentinean recession in 2001. This is why the Uruguayan financial system is nowadays less vulnerable to potential recessions of neighbouring countries. While the deposits in dollars went from the 88% of the total in 2000, to the 74% in 2013.
1,832
16% 12% 10% 7%
Solvency and liquidity The solvency situation of the financial institutions located in Uruguay is characterized by capital excess (on average 1.58 times the regulatory requirement) and the existence of a reasonable scheme of statistical foresight determined by the SSF. In this context, the stress tests developed by the SSF show that the banking system, on average, can bear a severe crisis scenario holding a reasonable patrimonial level. Moreover, the banking system presents great liquidity, where total liabilities represent approximately 70% of the system’s business volume.
4 Business volume = Non‐financial sector net outstanding loans + Non‐financial sector liabilities. Source: BCU. January 2014
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Financial system Chart 1 – Non‐resident deposits / total deposits5. 45% 40% 35% 30%
As regards loans to the non‐financial sector, private banks have increased their share in recent years. In 2013 this trend slightly reversed, of all loans granted in 2013, private banks conferred 43% while official banks (BROU and BHU) reached 57% of all banking institutions.
25% 20% 15% 10% mar‐ 00
mar‐ 02
mar‐ 04
mar‐ 06
mar‐ 08
mar‐ 10
mar‐ 12
mar‐ 14
As regards deposit terms, sight deposits account for over 80% of the system's total deposits. Chart 4 – Banking system deposits by type of institution, term and currency. Share % in total banking system. Year 2013 Private banking 57% Institution Public banking 43% Term Currency
Sight
81%
Term
19%
Foreign currency
66%
National Currency
44%
Source: Prepared by Uruguay XXI based on data from the BCU.
Chart 2 – Foreign currency deposits / total deposits6
One of the challenges faced by the Uruguayan banking system is the relatively low level of banking usage, both in terms of scope and coverage and of intensity in the use of banking financial services. Large and medium companies, which account for 3% of companies, carry out 70% of the credit operations of commercial banks. Whereas, small companies, that reach the 97% of the companies, scarcely use the credit services offered by banks. It is also a challenge when it comes to include the families in the financial system, measures are being implemented to promote the financial inclusion, to foment the savings and credits, and to improve the physical network of the financial institutions, among others. The República 7 Microfinanzas is a Uruguayan organization, which aim is to help the development of microentrepreneurs and low‐income families that are not considered by traditional banking.
95% 90% 85% 80% 75% 70% 65% mar‐ mar‐ mar‐ mar‐ mar‐ mar‐ mar‐ mar‐ 00 02 04 06 08 10 12 14
In this respect, the Financial Inclusion Law has been recently approved by the Senate. Positive outcomes are expected from this law in terms of the population's banking usage since the law's main purpose is the payment of wages, pensions, social allowances and fees through electronic means of payment7.
5 Source: BCU 6 Source: BCU
7
http://archivo.presidencia.gub.uy/sci/proyectos/20 13/11/mef_1327.pdf
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Financial system Mergers and Acquisitions For some years, Uruguay's financial market has been involved in a series of mergers and acquisitions. The highlights from the past few years are mentioned below. In 2011, SURA group, owner of Bancolombia, acquired Afinidad AFAP in Uruguay, controlled by ING. The company manages a portfolio of over US$ 1,400 million with over 260,000 members8. In 2010, the Canadian bank Scotiabank acquired 60% of the common shares in Banco Comercial and 100% in the finance company, Pronto9. In 2011, BBVA Uruguay concluded the Banco Crédit Uruguay acquisition process, by transferring its block of shares to BBVA10. In September 2012, the Banco Heritage de Uruguay, acquired the consumer and corporate banking operations from British Lloyds Bank Group11. In 2013, Itaú took over CitiBank's retail banking or consumer loans portfolios12. The Danish bank Saxo Bank acquired the Uruguayan‐based broker, NVN Securities Agente de Valores S.A., which holds a
9
http://genteynegocios.elpais.com.uy/afinidad‐afap‐ cambiara‐de‐manos‐tras‐venta‐de‐filiales‐de‐ing‐en‐ america‐latina 9 http://nbc.com.uy/nbc/novedades/630‐‐ comunicacion‐importante‐para‐nuestros‐clientes‐ 10 http://historico.elpais.com.uy/100504/pecono‐ 486271/economia/bbva‐compra‐el‐credit‐uruguay‐y‐ garantiza‐condiciones‐a‐clientes/ 11 http://www.elobservador.com.uy/noticia/232065/ banque‐heritage‐concreto‐la‐compra‐del‐lloyds‐en‐ uruguay/ 12 http%://www.elpais.com.uy/economia/noticias/ba nco‐itau‐comprara‐cartera‐citi.html
license from the BCU and operated in Zonamérica13. Securities market The Uruguayan securities market has experienced a steady growth since 2006 until today. However, it is still a very underdeveloped market compared with other markets in the region. It has been noted that State's financial instruments account for 96% of those traded in the market. In Uruguay, the stock market is composed of Bolsa de Valores de Montevideo (BVM) [Montevideo Stock Exchange] and the Bolsa Electrónica de Valores (Bevsa) [Electronic Stock Exchange]. In the BVM there are varied and important listed securities, among them: public securities such as Treasury Bonds, Treasury Bills, BCU‐issued long term savings bonds, Eurobonds, Global Bonds, Certificates of Deposit, UI‐denominated Certificates, as well as Private Securities such as Shares and Debentures of Corporations and Government Bonds in other countries. The operation of this market is strongly linked to the secondary market, i.e. to securities transactions subsequent to their issuance. Meanwhile, Bevsa is for the exclusive use of banks and other financial institutions, and is focused not only on the stock market but also on the foreign exchange and money market (interbank lending). Therefore, BVM's operations are less than those of Bevsa. Annually, operators related to the BVM conducted transactions for
13
http://historico.elpais.com.uy/121011/pecono‐ 668980/economia/saxo‐bank‐adquirio‐el‐nvn‐ securities/
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Financial system almost US$ 2 billion14 in 2013. That year the BVM was the custodian of more than US$ 1 billion in securities held by its members15.
Appendix I: Origin and branches of the private banking institutions in Uruguay16 Banco Santander S.A.17
One of the characteristics of the stock market in Uruguay is that the share of the primary market is greater than that of the secondary market. In December 2013, the primary market accounted for 60% of activities, whereas the secondary market represented the remaining 40%. Another characteristic of the Uruguayan Securities Market is that private companies offered in 2013 a large majority of negotiable bonds rather than shares (seven share issuers as opposed to eleven issuers of negotiable bonds).
2. Institutions involved ‐Banco Central del Uruguay (Central Bank of Uruguay): www.bcu.gub.uy ‐Bolsa de Valores de (Montevideo Stock www.bvm.com.uy
Montevideo Exchange):
‐Bolsa Electrónica de Valores del Uruguay S.A.: www.bevsa.com.uy ‐ Banco de la República Oriental del Uruguay: www.brou.com.uy ‐Banco Hipotecario del Uruguay (Mortgage Bank of Uruguay): www.bhu.com.uy ‐República Microfinanzas (Microfinance Agency):
www.republicamicrofinanzas.com.uy
14
http://www.bcu.gub.uy/Servicios‐Financieros‐ SSF/Principales_Variables_del_Mercado_de_Valores /mvrf07d1213.pdf 15 .01.2014_4573646_1.pdf .01.2014_4573646_1.pdf
El Banco Santander Uruguay is a subsidiary of Banco Santander Spanish group. It began operations in the country in 1978, and in 2008 it acquired the Uruguayan subsidiary of ABN, when the transfer of the subsidiary's assets to Banco Santander of Uruguay was authorized. Banco Bilbao Vizcaya Argentaria Uruguay S.A.18 BBVA in Uruguay began operating in early 2002, from the merger of BBV Banco Francés Uruguay S.A. and Banco Exterior de América S.A. Argentina. In 2010, BBVA Uruguay completed the acquisition process of Banco Crédit Uruguay, by transferring its block of shares to BBVA. Banco Itaú S.A.19 The Brazilian bank Itaú began operating in Uruguay in 2006 with the acquisition of BankBoston Uruguay and OCA card (a collateral company of the U.S. institution). In 2007, it acquired the private banking operations of the Dutch banking subsidiary ABN Amro Holding. Nuevo Banco Comercial S.A.20 Nuevo Banco Comercial began operating in 2003. It was created from the merger between Banco Comercial, Banco Montevideo and Banco Caja Obrera, whose
16
Source: Web page for each institution. March 2014 https://www.santander.com.uy/Personas/index.as p 18 https://www.bbva.com.uy/Inicio/Personas/ 17
19 20
https://www.itau.com.uy/biu/index.htm http://www.nbc.com.uy/nbc/
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Financial system sole shareholder was the Uruguayan government. Since 2011, the Canadian Scotiabank Group owns 60% of the shares of the Nuevo Banco Comercial, and the government owns the remaining 40%. Discount Bank (Latin America) S.A.21 Discount Bank Latin America was founded in 1958 as Discount Bank (Overseas) Limited, changing its name to Discount Bank Latin America in 1977. It currently operates as a 100% subsidiary of IDB Bank, bank of Israeli origin.
Citibank N.A. Uruguay Subsidiary22 The presence of Citibank in Uruguay dates back to 1915 when it started to offer services to multinational companies and other large corporations. These activities were complemented by a private banking business unit focused on deposit taking and other investment products. Banque Heritage (Uruguay) S.A.23 Banque Heritage Uruguay was founded in 1981 as "Surinvest Casa Bancaria" and in 1991 it was awarded a banking license. In 2007, Banque Heritage Switzerland acquired the Bank, acquisition which was completed in June 2010, acquiring the entire block of shares and becoming the sole shareholder of the Bank. During 2011 Banco Surinvest S.A. underwent an important change of name process, becoming Banque Heritage (Uruguay) SA. In September 2012, the Heritage Bank of Uruguay, acquired the retail and corporate banking operations of British Lloyds Bank Group.
http://www.discbank.com.uy/ibanking/ 22 https://www.citibank.com.uy/ 23 http://www.heritage.com.uy/web/BANQUE_HERIT AGE_URUGUAY/ 21
Banco Bandes Uruguay S.A.24 The Bank of Economic and Social Development of Venezuela is a financial agent of the Venezuelan State. It began operations in Uruguay in 2006 by buying COFAC, savings and loan cooperative. Banco de la Nación Argentina25 A Uruguayan branch of Banco de la Nación Argentina since 1961. Like its other branches in countries in the region, this branch's mission is to primarily serve domestic operations and intraregional trade, being a substantial tool to support Argentina's business activity in the region. Banco de la República Oriental del Uruguay26 Banco de la República Oriental del Uruguay is a public bank founded in 1896 which aims to provide affordable financial services to the entire population, encourage savings and promote the production of goods and services contributing to the productive, economic and social development of the country. In 2012, the Bank received the award for Best Bank by the World Finance Magazine, and in 2013 was honored as Bank of the Year by Latin Finance. Banco Hipotecario del Uruguay27 The BHU offers loans for buying new or used homes, as well as for home renovation.
24
https://www.bandes.com.uy/ http://www.bna.com.uy/home.asp 26 www.brou.com.uy 27 www.bhu.com.uy 25
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Financial system
Appendix II – Uruguay at a glance (2013)28 Official name Geographical location Capital city Area Population (2013) Population growth (2013) GDP per capita (2013) Currency Literacy index Life expectancy Form of state governance Political division Time zone Official language
Oriental Republic of Uruguay South America, bordered by Argentina and Brazil. Montevideo 176,215 km2. 95% of its territory is productive land fit for farming exploitation 3.39 million 0.40% (annual) US$ 16,421 Uruguayan peso ($) 98% 76 years Democratic republic with presidential system 19 departments GMT ‐ 03:00 Spanish
Key economic indicators – Uruguay Indicators
2008
2009
2010
2011
2012
GDP (% annual variation)
7.2%
2.4%
8.4%
7.3%
3.7%
GDP (in millions of US$)
30,367
3.37
3.38
30,461 38,882
Population (in millions of people)
3.33
3.34
3.36
GDP per capita (US$)
9,108
9,107
11,584
Unemployment rate – Annual Average (% EAP)
8.0%
7.7%
7.2%
2013
4.4% 47,237 50,004 55,708 3.39
14,017 14,792 16,421 6.3%
6.5%
6.6%
Exchange Rate (UYU/US$, Annual Average)
20.9
22.6
20.1
19.3
20.3
20.5
Exchange Rate (Annual Average Variation)
‐10.7%
7.7%
‐11.1%
‐3.7%
5.2%
0.8%
Consumer Prices (Var % annually accumulated)
9.2%
5.9%
6.9%
8.6%
7.5%
8.5%
Exports of goods and services (in millions of US$)
9,372
8,711
10,719
12,868 13,398 13,603
Imports of goods and services (in millions of US$)
12,779 14,685 14,964
10,333
8,191
10,089
Commercial Surplus/Deficit (in millions of US$)
‐961
521
630
89
‐1,287
‐1,361
Commercial Surplus/Deficit (% of GDP)
‐3.2%
1.7%
1.6%
0.2%
‐2.6%
‐2.4%
Global Tax Result (% of GDP)
‐1.6%
‐1.7%
‐1.1%
‐0.9%
‐2.8%
‐2.4%
Capital gross formation (% of GDP)
23.2%
20.1%
18.9%
21.1%
23.6%
23.6%
Gross Debt (% of GDP)
58.3%
75.4%
61.4%
57.2%
62.3%
59.5%
Foreign Direct Investment (in millions of US$)
2,106
1,529
2,289
2,504
2,687
2,796
Foreign Direct Investment (% of GDP)
6.9%
5.0%
5.9%
5.3%
5.4%
5.0%
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Sources: Data regarding GDP were taken from the IMF; data regarding foreign trade, foreign direct investment (FDI), exchange rates, International Reserves and External Debt were provided by BCU; population growth, literacy, unemployment and inflation indexes were provided by the National Statistics Institute.
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