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Buenos Aires, July 29, 2009 -- In terms of asset quality, profitability, and capitalization, last year's results for Bolivia's banking system were the best in 10 years, Moody's Investors Service points out in its yearly report on the industry. The rating agency notes, however, that the domestically focused system may finally be hurt by the global slowdown, thus weakening its financial fundamentals over the medium term. 

"The immediate negative impact from the global crisis manifested itself first in the fourth quarter of 2008 in the form of a slight ebbing of loan growth," says Vice President Maria Andrea Manavella, the report's author, "but we expect bank profits will shrink because of Bolivia's weakened export prices and declining business volumes; interest rate margins will also be squeezed as the competition to attract customer deposits increases." However, the analyst expects the ratings of the banks to remain generally stable. Moody's ratings for the Bolivian banks, as reflected by the average bank financial strength rating of D-, fall beneath the Latin American weighted-average of C. The bank ratings are primarily capped by Moody's low country ceilings for Bolivia , as well as by the still high**although declining -- level of financial dollarization (both on assets and deposits), which may affect the banks' financial condition. The banks' ratings are also capped by the limitations of the system, both in regards to credit intermediation and access to longerterm sources of funding. "Overall," Ms. Manavella says, "the Bolivian banking industry continued reporting positive results during 2008, when deposits were up 23% and gross loans increased 7.4%, which continued to signal a turnaround in the still-low level of financial intermediation activity, vis-à-vis regional peers'." "Asset quality remained adequate," she continues, "supported by improvements in the economic environment, which have allowed banks to also maintain good provisioning coverage." 

According to the analyst, nonperforming and restructured loans have declined substantially for the system as a whole during recent years. Bolivian banks benefit from a large, stable customer deposit base, which comfortably funds their loan portfolios. "Bank deposits have increased steadily, despite several disruptive political events," Ms. Manavella notes. "In spite of efforts to decrease the amount of foreign currency deposits in the system, however," she adds, "they still represent 55.0% of the total amount -- although this is down substantially from the 90% levels reported in 2004." Moody's draws comfort from the adequacy of banking supervision and of the regulatory framework, both of which are supportive of the bank ratings. "To date, the analyst says, "there are no signs of government interference that could eventually impair the performance of the system."