MercoPress. South Atlantic News Agency

Another Good Year Expected For Uruguayan Bank Profits

Uruguayan banks will probably be able to continue with last year’s profits in the current year, as the economy strengthens, Fernando Oliva, directory of consultancy at Doloitte told BNAmericas.

Uruguayan banks posted a 525mn-peso (US$26.7mn) profit last year compared with a 1.8bn-peso combined loss in 2009, according to a report by the Central Bank of Uruguay.

Despite that half of the dozen private banks operating in Uruguay ended the year in the red, most lenders posted better results in 2010 than in 2009, mainly thanks to a slightly weaker peso, which boosted their bottom line given the system's high level of dollarization.

Other factors explaining last year's improved results were stronger lending, which fueled interest revenues, and a stronger presence of peso-denominated loans, which have higher spreads than US dollar-denominated loans, Oliva said.

Nevertheless, banks' growth will likely lead to higher administrative expenses, coming from branch expansion plans, for example, and the banks will - as usual - have to keep an eye on the fluctuations of the peso this year, he said.

As for lending, Oliva believes Uruguayan banks will have another good year in 2011 given the positive outlook of the economy, unemployment levels and real salaries.

Private sector banks' net loans rose 17% to 202bn pesos last year, according to BCU's figures.

A vibrant economic expansion coupled with higher expected consumption will be the main drivers behind this year's loan growth, Oliva said.

According to the International Monetary Fund (IMF), Uruguay's GDP growth will likely slow down to 5% in 2011 after expanding by 8.5% last year.

Banks have also been very active in launching new short- and long-term loans. Competition is increasing among relevant players, so this hunger and need for growth will boost loan expansion, he said.

“The loan-to-GDP ratio in Uruguay is still relatively low compared with the country's historic average and international ratios, so we think there is still room for growth,” he said.

The local unit of Spanish bank Santander is the leading player among private banks in Uruguay. Thanks to its acquisition of the local subsidiary of French bank Credit Agricole, BBVA Uruguay will jump to the second spot.

The local unit of Brazil's Itau Unibanco is third, while last month Canada's Scotiabank entered the Uruguayan banking system through the purchase of number four private sector player Nuevo Banco Comercial.

Uruguay's private sector banks had 277bn pesos in assets at the end of 2010, with combined equity strengthening 4.9% to 23.4bn pesos.