Publication: El Salvador - Financial sector assessment
Date
2010-11-01
ISSN
Published
2010-11-01
Author(s)
World Bank
Abstract
Despite the global and domestic shocks
of 2008-2009, the banking sector remains sound. Salvadoran
banks were not directly exposed to the global financial
crisis. However, the parent banks of several major
Salvadoran banks were and directed subsidiaries to conserve
risk capital. The higher risk aversion and recession in the
United States, combined with uncertainty about the 2009
elections, led to a sharp economic downturn, and a decline
in both credit demand and supply. Banks' nonperforming
loans increased and profitability declined. Even so,
capitalization remained high. Stress tests indicate that
most banks would be able to withstand large deposit
withdraws and severe deterioration in credit quality arising
from large macroeconomic or sectoral shocks. However, credit
concentration risks appear significant. Regulated non-bank
financial institutions do not pose significant risks, but
pension funds' poor profitability is a concern for the
long-term. Regulated cooperative banks and insurance
companies report healthy financial indicators. Brokerage
houses have reduced drastically their fund management
activities, which until recently posed systemic risks due to
inadequate regulations and unsound commercial practices.
Pension funds have grown considerably and now amount to 25
percent of total financial sector assets. However,
investments are mostly in low-yielding public sector
securities. To ensure a sound financial footing for the
pension system, an in-depth actuarial analysis should
evaluate pension reform costs and calculate replacement
rates. The type of investments available to pension funds
should be expanded progressively to increase
diversification, improve returns and foster capital markets.
Citation
“World Bank. 2010. El Salvador - Financial sector assessment. © World Bank. http://hdl.handle.net/10986/2949 License: CC BY 3.0 IGO.”