Publication: El Salvador Financial Sector Assessment Program Development Module: Non-Bank Savings and Credit Institutions
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2016-11
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2017-03-15
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This Technical Note was prepared in the context of a World Bank Financial Sector Assessment Program mission in the Republic of El Salvador in March 2016. This FSAP Development Module focuses on (i) financial systems issues, including competition and efficiency; (ii) financial inclusion and non-bank financial institution issues, (iii) public sector banks, (iv) financial system infrastructure, including payments, remittances transfers, and credit information systems; (v) capital market and private pensions development issues; and (iv) insurance. This note is arranged as follows: Section I gives the Background and Current Situation. Section II describes Extension of the Regulatory Perimeter and Section III discusses about Select Latin American Experiences on Supervision Of NBSCI. The document contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at www.worldbank.org/fsap.
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“World Bank. 2016. El Salvador Financial Sector Assessment Program Development Module: Non-Bank Savings and Credit Institutions. © World Bank. http://hdl.handle.net/10986/26276 License: CC BY 3.0 IGO.”
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Publication El Salvador Financial Sector Assessment Program Development Module(World Bank, Washington, DC, 2016-11)This Technical Note was prepared in the context of a World Bank Financial Sector Assessment Program (FSAP) mission in the Republic of El Salvador in March 2016. This FSAP Development Module focused on (i) financial systems issues, including competition and efficiency; (ii) financial inclusion and non-bank financial institution issues, (iii) public sector banks, (iv) financial system infrastructure, including payments, remittances transfers, and credit information systems; (v) capital market and private pensions development issues; and (iv) insurance. The Technical Note describes the background and current situation of the public sector and development banks, and continues with specific recommendations directly linked with the assessment and diagnosis performed. The document contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at www.worldbank.org/fsap.Publication El Salvador Financial Sector Assessment Program Development Module(World Bank, Washington, DC, 2016-11)This Technical Note was prepared in the context of a World Bank Financial Sector Assessment Program mission in the Republic of El Salvador in March 2016. Despite the challenging economic environment, El Salvador has made significant strides towards a more inclusive financial sector. However, El Salvador faces a number of challenges, including regulatory weaknesses and uncertainty, anti-competitive practices, and a fragile security situation that impacts investment and innovation. The country still presents low levels of access to and use of a range of financial services. The financial sector is diversified, but some challenges need to be overcome to increase competition and innovation. There seem to be no excessive legal barriers to entry for new banks and the framework allows for a diverse range of large and small deposit-taking entities. The microfinance sector is diverse and competitive and reforms are underway to strengthen regulation and supervision, but capacity is an issue. Also, the microfinance prudential regulation should be improved to be in line with international good practices and standards. Reforms are needed to spur the use of electronic accounts and transactions and to improve the draft rules for simplified accounts. Further progress could be made by allowing bank and nonbank financial institutions access to and use of telecommunications infrastructure on a non-discriminatory basis. An effective consumer protection legal, regulatory and supervisory framework is needed to ensure healthy financial inclusion. The Note contains technical analysis underpinning the FSAP findings and recommendations. Given the requested focus on digital finance and consumer protection, certain areas relevant to financial inclusion – notably small and medium enterprise finance, financial education, microfinance regulation and supervision– have been addressed in an abbreviated manner in this Technical Note. Although this Note incorporates some insights from the Technical Notes covering Financial Infrastructure, Non-Bank Savings and Credit Institutions (NBSCI) and Public Banks, not all related issues are incorporated in this Note, so the other Technical Notes should be read for a more comprehensive view of Salvadoran financial inclusion.Publication El Salvador Financial Sector Assessment Program Update(Washington, DC, 2010-11)Financial service provision has expanded since the 2004 financial sector assessment program (FSAP) update, but access to financial services can expand greatly through mobile banking. An estimated 47 percent of adults in El Salvador have deposit accounts at a regulated financial institution, similar to the Latin American average. Although a range of range of bank and non-bank institutions serve the micro and Small and Medium Enterprises (SME) finance market, significant financial services provision is occurring outside of the regulatory perimeter. Improvements in credit information systems, simplification of credit documentation processes, and a strengthened legal framework for factoring can help facilitate SMEs access to credit. Issues of financial transparency and consumer protection are of increasing importance to the Salvadoran authorities, although resources for enforcement are limited. Both public and private entities are engaging in educational activities to promote financial literacy have the potential to play an important role in curbing over indebtedness. However, the consumer defense agency (Defensoria al Consumidor) lacks sufficient resources for enforcement of consumer protection laws. This paper is divided into following six parts: first part gives overview of financial access and usage patterns; the second part gives information on funding and savings products commercialized; the third part gives market participants; fourth part is legal and regulatory impediments to credit; fifth part deals with supervisory and regulatory perimeter issues; and sixth part is transparency, consumer protection, and financial literacy.Publication El Salvador Financial Sector Assessment Program Development Module(World Bank, Washington, DC, 2016-11)This technical note was prepared in the context of a World Bank Financial Sector Assessment Program mission in the Republic of El Salvador in March 2016. The Salvadoran financial system lags behind its peers in terms of depth put it outperforms them in terms of competition and efficiency. Given the country’s relative low financial depth but competitive environment, there is room for expansion and financial development which can provide greater funding for the productive activities of the private sector. This technical note takes four main approaches to examine the extent of competition and efficiency of the Salvadoran banking sector. First, it examines bank entry and exit regulations and bank transparency to determine whether the existing framework promotes contestability and competition. Second, the note evaluates the degree of concentration in the banking sector and estimates direct measures of competition by calculating the H-statistic for the Salvadoran banking sector and by comparing it to those obtained for its regional peers. Third, the note evaluates efficiency by examining the behavior of bank spreads, profitability and financial intermediation margins and costs. Fourth, the note looks into the different segments of the loan market to evaluate how efficiently credit is being allocated. Finally the note ends with some policy recommendations. The document contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at www.worldbank.org/fsap.Publication El Salvador Financial Sector Assessment Program Development Module(World Bank, Washington, DC, 2016-11)This technical note was prepared in the context of a World Bank Financial Sector Assessment Program mission in the Republic of El Salvador in March 2016. The capital markets in El Salvador continue to remain relatively small but have played a larger role in financing real sector needs in the last 5 years. The investor base is dominated by institutional investors. Two pension funds represent the primary investors in the securities market, followed by banks and insurance companies. The integration with Panama is a welcome development and will help improve opportunities for Salvadoran investors and issuers. The regulation and supervision of capital markets is shared, respectively, between the Central Bank (BCR) and the Financial Superintendency (SSF) and this required stronger coordination. The document contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at www.worldbank.org/fsap.
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