The preliminary agreement with the Salvadoran government provides for an increase in liquidity buffers for private banks.
Private banks, one of the most important players in the economy, see very positive – the preliminary agreement between the Salvadoran government and the International Monetary Fund (IMF) to correct fiscal deficiencies.
We see very positive the announcement of the Monetary Fund, reflects that the negotiations are progressing and mentions the points, that an agreement will be worked on, said Alexander Pinilla, financial vice president of Bancoagraícola, the largest bank in El Salvador.
In a statement issued on 6 August, the IMF detailed that the agreement provides for a fiscal adjustment of 3.5 points of gross domestic product (GDP) for three years to place public debt on a sustainable path.
The talks also included a plan to gradually strengthen the liquidity buffers of the financial system to meet credit demand and private sector growth.
In addition, it envisages measures to reduce government dependence on domestic and multilateral funding.
Pinilla pointed out that there is still not much information in detail about the plan with the IMF, but considered that the reserves of the local square can always be improved, made up of 12 large banks – two of state capital and 10 private ones.
We find progress positive, we are looking forward to further details and we believe that these negotiations are on the right track, all issues of liquidity and strengthening reserves can always be made better, even though deposits are growing, they are dynamic and are not having (the banks) a need for liquidity per se, the banker reiterated.
Solidity of the banking system
Banks are the main government financiers in the domestic market through the issuance of Treasury Certificates and Letters (Cetes and Letes). The Ministry of Finance reports that as of June the debt balance in these instruments exceeds $1.989 million, equivalent to 5.6 per cent of GDP.
However, the sector has argued that the liquidity of the financial system is not compromised, which is largely supported by the savings of Salvadorans thanks to remittances.
Despite the consecutive crises since 2020, the bank has shownpositive resultswith a growth in the credit portfolio 5.6% in the first half of 2024 after accumulating $17,639 million, while deposits rebounded 4.8 percent with a balance of $17,639 million.
Deposits are the main source of banks, with a share of 85.1 per cent.
In 2023, the Treasury began a $1.5 billion re-profiling process placed with banks to modify maturities that previously did not exceed the year to a structure of one, two, three, five and seven years.
The spokesman for Bancoagriícola said that the restructuring of the securities for seven and five years maturities has already been completed, while progress is being made in the securities for three years. The timeline indicates thatend next September.
This article has been translated after first appearing in Diario El Mundo