Banks To Face Further Pressure From Government Regulation

BMI View: Recently introduced financial sector regulation in Ecuador will put pressure on private banks to extend credit to new segments of the economy. While this could bolster the financial sector's growth, we see potential for deterioration in banks' asset quality, elevating systemic risks.

Ecuador's banking sector will continue to struggle in the coming quarters due to an unfavourable regulatory environment under President Rafael Correa ( see 'Banking Sector To Underperform Its Growth Potential', September 5 2013). This view was reinforced by legislation introduced to the Ecuadorean national assembly by the Correa administration in late June. The bill seeks to consolidate control of monetary policy and all regulatory authority over the banking sector in the hands of a new committee, 'The Political Board for Monetary and Financial Regulation', comprised of members of the executive branch. Most significantly, the bill gives the committee authority to determine how privately-held banks allocate credit. Correa's Alianza PAIS political party controls 100 out of 137 seats in the national assembly, and we expect the bill to pass within the next several weeks.

Potential Benefits, As Credit Extended To New Industries

Banking Sector Still Relatively Undeveloped
Ecuador - Private Bank Metrics

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Related sectors of this article: Economy, Economic Policy
Geography: Ecuador

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