The local bank foresees a ‘painful adjustment’

Ecuadornews:

Everything points to a recession looming. This is one of the perspectives that the Association of Private Banks of Ecuador (Asobanca) has for 2019.

The economic adjustment, underpinned by a lower investment in public works, and the lack of liquidity due to the limited access to credit that the Government has had this year, force the bank to close the key to the loan next year.

In a conversation with the media, the executive director of Asobanca, Julio José Prado, said that in 2019 entities should safeguard the liquidity of banking and interest rates will rise from the first quarter. “What banks will have top rivilege is to safeguard liquidity, deposits,” Prado said.

Currently,loans grow at a faster rate than deposits and the situation is not sustain able if we want to safeguard the solidity that the financial institutions of the country enjoy today.

To all this complex scenario is added the high risk country of Ecuador, which in recent days ranges between 760 and 800 points.

Country risk is an indicator that reflects the possibilities of a country to meet, in the agreed terms, the payment of its external debt, either to the capital or its interests.

The morea country’s risk level grows, the greater is the probability that it will enterinto default moratorium called ‘default’ and the interest rates for the countrywill increase.

Butth is situation does not only affect the Government. Prado said that banks are having difficulties accessing credit at convenient rates and this reduces the profitability of the entities.

Prado explained that in recent years the country got used to growing pushed by debt and the situation is now complicated due to the scarce options that the Government has to obtain financing at reasonable interest rates.

Reversing that model will not be an easy way, according to Prado. The process of adjustment and economic growth, to stop being dependent on the debt, can take between three and five years and will be “painful”.

However,in the process of adjustment the country cannot stop borrowing. For Prado, an agreement with the International Monetary Fund (IMF) or a loan from China is essential to rebuild the international reserve of the Central Bank of Ecuador,which in recent months have been placed below 3,000 million dollars.

Ingeneral terms, it is the external liquidity of the country through which all of Ecuador’s transactions with the world pass: both collections and payments.

What is the output? The bank proposes reforms to the Monetary Code that allow greater control of interest rates for financial institutions. In addition,other regulations must be changed, in accordance with international standards,to attract foreign capital and banks. (I)

Source: https://www.expreso.ec/economia/bancos-privados-economia-presupuesto-ajuste-KE2503804