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Poor economics prompt foreign banks to leave Bolivia.

LA PAZ -- Dutch bank ABN Amro last week completed its departure from Bolivia, signing a final contract transferring its assets to local group Banco Mercantil for $25 million. The withdraw comes on the heels of a decision last month by US Citibank to pull out of retail banking and an alarming report of a rise in bad debts held by local institutions.

Banking officials blame a continued recession in Bolivia for the problems and say banking reforms enacted since 1995 should help avoid any major financial turmoil.

The total amount of bad debt held by local banks has jumped 113% over last year to $250 million, a figure that would have created significant concern a few years ago. However, larger reserve requirements and increased transparency have allowed investors and regulators to manage the problems. Stringent lending controls also have prevented the accumulation of even more bad debt by reducing the number of loans to risky, but well-connected borrowers

Since the banking reforms were adopted, regulators also have shut down four weak banks and forced three others to merge with stronger institutions.

The more robust financial climate encouraged investments by international banks. Citibank's foray into retail banking came after it bought the assets of BHN-Multibanco, which went into liquidation in 1997. The country's largest bank, Banco Santa Cruz, was bought the following year by Spain's Banco Central Hispano, and Peru's Banco de Credito gobbled up two Bolivian banks since 1995, giving it the second largest portfolio in Bolivia.

However, the downturn in the economy and a failure by individual banks to cut costs is hitting the financial sector hard, as is the 11% spread between passive and active interest rates.

The Bolivian market also appears to be in need of additional consolidation. With nine major banks competing for just $3 billion in deposits, there is simply not enough money to ensure profits for all. The banking sector as a whole logged more than $20 million in losses through the third quarter.
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Publication:America's Insider
Article Type:Brief Article
Geographic Code:3BOLI
Date:Dec 8, 2000
Words:330
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