Uruguay’s banking system has a problem – even if it is a nice problem to have. Its banks are awash with cash that they can only partially lend out.
“The Uruguayan banking system is sound, it’s very liquid and it has strong fundamentals, but we have much more deposits than credit we can grant locally, and that’s a big issue,” says Horacio Vilaró, general manager of the Uruguayan unit of Brazilian lender Itaú.
“On average, we lend 40% of our possibilities and place the remaining deposits abroad at international money market rates, so you can only profit on that 40% and not the 100% of your deposit base,” explains Vilaró. “If you’re not structured to make your money here on commissions and fees, then you face a problem because you have too many resources that are not producing interest.”
Loan income accounts for less than half of Uruguayan bank revenues, with fees and foreign exchange revenues together making up around 25%.
Credit growth in Uruguay had been impressive, with banks expanding their loan books by more than 20% in 2013 and 2014. Yet when the global commodity price shock in 2015 hit the country’s commodity-dependent economy and Argentina and Brazil both slipped into recession (dragging down Uruguay’s other main industry, tourism), credit began to seize up.