Ecuador banks: not so happy days

It is not easy being a bank in Ecuador these days.

Not only has the combined profit of the Andean country’s private banks dropped 21 per cent last year as the government of leftwing president, Rafael Correa, tightened its grip on the sector. But elsewhere, the industry is being probed for telling customers that a bank tax bill proposed by Correa to fund welfare programmes would undermine the country’s financial system.

Pedro Páez, Ecuador’s antitrust chief, told Bloomberg he is looking into whether the nation’s largest banks colluded last year in sending e-mails and placing phone calls about the proposed new tax – meant to raise $320m for a $50 cash-transfer scheme for poor families.

“We’ve got a collective, simultaneous action from the most important banks, the dominant operators in the market,” he told Bloomberg. Páez added penalties could lead to fines of as much as 12 per cent of the banks’ annual sales.

He did not specify which banks are being probed. But after the government introduced the bank tax bill last year, the country’s four biggest banks – Banco del Pichincha, Banco de Guayaquil, Banco de la Producción, and Banco Bolivariano – started emailing and phoning clients.

Those four, alongside the state-run Banco del Pacífco, control over 60 per cent of Ecuador’s $27bn banking assets. The Andean country’s twenty-six banks reported $312m in net profit for 2012, down from $395m in 2011.

Correa, a US-educated economist, has long been at odds with banks, blaming them for the financial crisis of the late nineties that led to hyperinflation and forced the country to devalue, finally dollarising its economy and leaving thousands of account holders losing a chunk of their savings.

Recently, he has criticised them for improperly influencing national politics. Some analysts believe the probe could work as a scare tactic for banks to Correa’s policies. Timely, as next month he faces Guillermo Lasso, a former banker, in a presidential election he would likely win.

According to a recent report by Analytica Securities in Quito the picture is not rosy:

Some fear that the president, if reelected, might be tempted to nationalise banks whose share prices have gone into a tailspin. Since populist president Rafael Correa came into office on an anti-neoliberal platform in 2007, regulations have become ever tougher. The government sets interest rates, limiting returns from lending activities. It has also reduced or eliminated numerous fees that banks could previously charge customers. By the middle of 2012, banks had to sell off a series of assets deemed incompatible with banking, including their insurers, fund management companies, and brokerages.

Related Reading:
Ecuador’s banks brace for new tax, beyondbrics
Ecuador: who needs an economics degree (except the central bank boss…)?, beyondbrics
Ecuador: time to say adios to the dollar?, beyondbrics