By Mercedes Alvaro
QUITO, Ecuador--Net profits and return on equity of private
banks in Ecuador fell sharply during the first quarter, which
analysts say is a sign of a gradual deterioration in the business
climate.
Economists said that Ecuador's banking sector is becoming a less
desirable business.
According to official data, return on equity, or ROE, was at 8%
for the first quarter, down from 15.2% registered one year before,
while net profit fell about 42% to $55 million.
The data includes profits for 24 private banks operating in
Ecuador, plus state-run Banco del Pacifico.
Banco del Pichincha (PCH.GU), Banco del Pacifico and Banco de
Guayaquil (BGYQY) topped the list, with $11.92 million, $8.15
million, and $7.41 million in profit, respectively, according to
the report. The three banks accounted for about 50% of the reported
combined income and 54% of Ecuador's banking assets.
About 9% of March profits came from foreign banks operating in
Ecuador, which includes the U.S.-based Citigroup Inc. (C),
Dutch-German Procredit Bank and Panama's Promerica.
In January, a law to increase taxes on the banking sector went
into effect. The law was approved last year in order to finance a
43% increase of the so-called human-development bond, which since
January provides a cash payment of $50 a month to some 1.9 million
individuals living in poverty.
According to Weekly Analysis, an economic report from private
consulting firm Grupo Spurrier, the combination on higher taxes and
the loss of steam of the economy has led to a drastic drop in bank
earnings.
The central bank said that Ecuador's gross domestic product
likely expanded 5% last year. In 2011 the Ecuadorean economy grew
8% and for 2013 it is expected to grow about 4%.
Since taking office in 2007, President Rafael Correa has been
setting interest rates and increasing the services that banks must
provide to clients for free.
Banks were also forced to divest or liquidate their stakes in
insurance and brokerage companies and pension administrators.
All of these measures have started to hurt the financial
system.
The Weekly Analysis report says for next year most banks won't
be able to increase equity in a meaningful way, because there will
be low earnings, leaving little to capitalize.
"Current stockholders would be reluctant to pour more of their
personal equity into banks, which because of punitive taxes have a
depressed market value: they have become a less desirable
business," the report said.
According to official data, assets in the banking system totaled
$27.70 billion in March, while liabilities were $24.92 billion.
Write to Mercedes Alvaro at mercedes.alvaro@dowjones.com
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