The price of Ecuadorian oil suffered a significant drop after the crisis originated in the United States due to the bankruptcy of the Silicon Valley Bank.
Ecuador begins to feel the first effects of the collapse of Silicon Valley Bank (SVB), in the United States, and they manifest with a drop in oil prices.
But the financial sector rules out a possible blow in Ecuador, beyond the drop in international oil prices.
On a global scale, the collapse of Silicon Valley Bank has caused declines in the banks’ shares on the world’s major stock exchanges.
SBV is the largest bank in the United States to fail since the 2008 financial crisis. For now, it is ruled out that there could be a crisis similar to the one at that time, unleashed by the collapse of the housing bubble.
“The collapse of said bank is linked to its particular situation and the economic environment in the United States,” says Marco Rodríguez, president of the Association of Private Banks of Ecuador (Asobanca).
Rodríguez adds that in Ecuador the regulatory and supervisory entities of the banks are constantly monitoring the health of the financial system. The “solidity, solvency and liquidity of the banks in Ecuador is reflected in its main indicators”.
As of February 2023, private banking equity stood at USD 5,998 million, which represents an annual growth of 9.8%.
The solvency of the sector was at 13.2%, four percentage points higher than the legal requirement, which is 9%.
While liquidity was at 27.2%, a growth of 0.9 percentage points compared to a year ago.
Rather, Ecuadorian banking has seen an increase in costs to obtain liquidity abroad, as a result of the rise in interest rates in the United States during the last year.
Rodríguez recalled that the soundness of the financial system has faced and overcome several challenges in the last 15 years.
The most recent was in 2022, with the Covid-19 pandemic; and previously, in 2008, with the financial crisis in the United States and in the rest of the world.
Oil prices in free fall
One sector that began to feel the effects of the US banking crisis has been oil.
The price of WTI oil fell 5.21% and closed at USD 67.61 per barrel on March 15, driven by the banking crisis in the United States and which is strongly punishing European banks and, especially, the Swiss bank Credit Swiss.
This reflects the fear of investors that a new financial crisis will translate into a reduction in future demand for oil.
Meanwhile, the price of Ecuadorian oil, which is referenced to WTI, also plunged to USD 61 per barrel, according to Petroecuador’s March 13 projections.
However, the Minister of Energy, Fernando Santos, said that the fall continues and until yesterday it stood at USD 56 per barrel. “We have a noticeable drop in the price of oil,” Santos reported.
This implies that Ecuadorian oil is now trading below what was projected in the General State Budget, which is USD 65 per barrel.
And this means that income is reduced to finance the General State Budget.
The drop also occurs because heavy oil from Russia, which is a competitor to Ecuadorian crude, is selling at a discount, pushing prices down.
Santos believes that the contraction in oil prices will continue until June 2023, but expects a recovery in the second half of the year.
Deposits in the United States
Ecuadorian clients with deposits in US banks suffered moments of anguish after the closure of Silicon Valley Bank on Friday, March 10.
SVB was focused on the technology sector; therefore, most of their deposits came from startups, located in California.
The Ecuadorian startup Storybook had its deposits in First Republic Bank, whose shares plunged due to the uncertainty created by the SVB. This San Francisco-based bank also specializes in services for technology companies.
The founder of Storybook, Francisco Cepeda, says that he had to move his deposits to another financial entity in the United States and to banks in Ecuador.
Cepeda says that there is also uncertainty about the future of the technology sector, especially because there is fear of a restriction in access to financing.
As of March 13, the United States Federal Deposit Insurance Corporation began paying out the money of Silicon Valley Bank customers who had insured deposits.
While the rest will have to wait for the sale of the bank’s assets. About 96% of the bank’s deposits were not insured.
After the millionaire withdrawals from its clients, the deposits that remained in the bank amounted to USD 175,000 million.
The Federal Reserve and the US Government announced new emergency funds to protect all SVB deposits and not just insured ones.