Introduction

This post presents an overview of Bolivia’s banking system balance sheet, based on the financial statements as of June 2024.

The main focus is on the asset side—i.e., how banks are investing their own funds (equity) and the funds borrowed from the public (liabilities).

General Overview: The Balance Sheet

The balance sheet is a snapshot of a financial institution’s financial position at a given point in time. It presents the entity’s assets, liabilities, and equity.

In banking, assets represent the resources invested—such as loans granted, deposits in other banks, property and equipment. Liabilities are the funds borrowed—customer deposits, loans from other banks, and so on. Equity is the difference between assets and liabilities, i.e., the bank’s own capital.

Structure

To provide some context, the chart below shows a summary of the balance sheet composition at three points in time: June last year, and May and June of this year. This helps us understand structural changes over the year and compared to the previous month:

First, the balance sheet has expanded significantly compared to June 2023. It’s important to note that Banco Fassil had been liquidated a few months before, which had caused a contraction in the system that has since been absorbed.

More relevantly, given the current context, the banking system has expanded its balance sheet by nearly USD 300 million—an annual increase of approximately 9%. This increase is mainly due to a rise in liquid assets, and to a lesser extent, modest growth in the credit portfolio. On the liability side, current accounts have grown the most.

By Currency

Another informative perspective is to break down assets and liabilities by currency—local versus foreign:

At first glance, banks have been prudent in managing currency mismatches, holding more foreign currency assets than liabilities, which protects equity in case of devaluation. However, two issues must be noted. First, there has been a reduction of over USD 500 million in foreign currency assets and liabilities between June 2023 and June 2024. Second, even though banks appear to be balanced in foreign currency on paper, many foreign currency assets have been pledged to the Central Bank of Bolivia (BCB) for local currency liquidity, and therefore are not available to repay depositors. This is shown in the following chart, which isolates foreign currency balances:

Note that most foreign currency liabilities are public obligations (savings and checking accounts), while FX assets are classified as permanent investments and liquid assets. The former refers to investments in guarantee funds for social housing and productive credit, and the latter includes cash on hand and reserves held at the BCB to meet legal reserve requirements.

Assets

Banks’ assets include cash in vaults and ATMs for daily operations, loans granted (the credit portfolio), investments in financial instruments, and the real estate needed to operate. The most important component, however, is the credit portfolio, as it generates the highest income and determines the financial outcomes of the institution.

In addition, due to uncertainty stemming from the economic slowdown and the drop in Net International Reserves (NIR)—which threatens exchange rate stability—alongside the resolution of Banco Fassil, banks have increased their holdings of cash and very short-term investments to prepare for potential deposit withdrawals. Therefore, liquidity management is a crucial issue that must be closely monitored.

The following chart shows how the banking system’s assets have evolved since 2015. The system has nearly doubled in size over the period. However, as of now, it has not fully recovered the asset levels observed before Banco Fassil exited the system at the end of 2022.

Additionally, three points are worth highlighting. First, so far in 2024, banking system assets have grown by only USD 59 million—a rather low figure compared to previous years. Second, although the loan portfolio is growing, its pace is slow compared to prior periods. Third, there has been an interesting shift in liquidity from cash holdings toward short-term investments. This reallocation may indicate that banks are seeking to earn higher returns on excess liquidity in a context of sluggish credit growth. On the other hand, if the securities being purchased are issued by the BCB, this could reflect a contractionary monetary policy intended to reduce liquidity in the system, possibly to counteract the recent rise in public sector credit.

Liquid Assets

According to the Manual of Accounts for Financial Institutions, liquid assets are defined as:

“Cash held by the entity in vaults, sight balances at the Central Bank of Bolivia, head office and foreign branches, as well as in domestic and foreign banks and correspondents; also, the holding of precious metals.
They also include cheques, other immediately collectible financial instruments, and pending electronic payment orders.”

It’s important to note, though outside the scope of this entry, that the BCB’s legal reserve regulation requires financial institutions to hold a percentage of customer deposits in reserve accounts at the BCB. This rule mandates that banks keep a minimum level of liquid assets proportional to the deposits they receive.

Composition

As shown in the chart below, total liquidity in the system has remained relatively stable around USD 4 billion, of which roughly 30% is held as cash to meet operational needs (withdrawals, ATMs, etc.). However, there has been a sharp drop in the cash held at the BCB, likely reallocated into other financial assets with better returns.

By Currency

Given the aforementioned drop in NIR and the resulting shortage of foreign currency in the economy (see this article), one would expect FX liquid assets to have declined. However, as seen in the chart below, foreign currency liquidity has remained stable around USD 900 million. This suggests banks are holding onto their FX positions—possibly to meet regulatory requirements—rather than fully meeting public demand.

It’s worth noting that while the average FX liquidity is around USD 900 million, only about USD 300 million is held as physical cash. The rest is held at the BCB or in foreign correspondent accounts.

Short-term Investments

According to ASFI’s Manual of Accounts, temporary investments are:

“Investments in deposits at other financial institutions, deposits at the Central Bank of Bolivia, and debt instruments acquired by the institution. These are made, per the investment policy, with the intent of earning a return on temporary liquidity surpluses and are expected to be convertible to liquid assets within no more than thirty (30) days.”

Let’s take a closer look.

Composition

The chart below shows the composition of temporary investments each December from 2015 onward:

Temporary investments have averaged around USD 4.2 billion. A growing share has been allocated to the BCB, likely because it offers better returns on instruments such as term deposits, notes, and bonds. As mentioned earlier, this could also reflect a tightening monetary policy.

By Currency

An analysis of temporary investments by currency shows a growing concentration in local currency over time. Particularly notable is the decline in restricted FX operations, which were the most significant in 2016 and are now among the least.

Loan Portfolio

This section analyzes the behavior of the banking system’s loan portfolio, which is the main source of financial income and by far the most important asset for Bolivian banks.

Portfolio by Credit Type

One way to analyze the loan portfolio is by type of credit:

As shown, the banking system’s loan portfolio has grown over time. Generally, microcredit and mortgage lending—followed by corporate, SME, and consumer loans—are the leading segments.

So far in 2024, corporate and microcredit loans have grown the most.

Growth

A key question is how the portfolio has grown in recent years. This matters because both excess growth and insufficient growth can signal problems. Excessive credit expansion may lead to solvency risks, while sluggish growth may reflect weak aggregate demand and real sector issues.

The following chart shows the year-on-year growth of the loan portfolio (excluding provisions and accrued interest):

We see that lending grew rapidly during the second half of the 2010s, peaking around March 2011. Growth then lost momentum but remained in positive double digits. After the resolution of Banco Fassil in March 2023, portfolio growth turned negative.

However, this doesn’t necessarily mean banks are reducing credit issuance individually. The issue is that Banco Fassil’s exit caused a drop in the base for growth calculations—so even if other banks increased lending, the total system portfolio couldn’t offset Fassil’s departure. This is evident in the entity-level growth chart:

Here, we see that most banks have significantly slowed lending—many growing at a slower pace than during the early months of the pandemic. This trend warrants close monitoring as it may reflect a general economic slowdown and declining credit demand.

The chart below shows monthly changes in loan balances:

Credit activity has visibly declined since 2015 when viewed as monthly flow.

Non-Performing Loans (NPLs)

The non-performing loan ratio refers to loans overdue by more than 30 days as a share of total loans.

The next chart shows the historical trend of the NPL ratio since January 2003. In 2003, NPLs peaked at around 23%, a level that would now be considered sufficient to declare the banking system insolvent. This was during the financial crisis of the early 2000s—a very difficult time for Bolivia.

After that, the NPL ratio dropped significantly. By 2007 it returned to single digits, and by 2013 it reached a minimum of 1.55%. Since then, the ratio gradually increased to around 1.8% until the pandemic, when loan refinancing and restructuring artificially lowered it.

Following the pandemic, NPLs have risen again, and the trend remains upward. This raises challenges for financial institutions and regulatory bodies. The post-2013 data illustrates this more clearly:

If the situation is not brought under control, it could lead to solvency issues. In times of macroeconomic uncertainty, a perceived solvency problem in one or more banks could trigger a bank run—even if the institution isn’t actually insolvent. Therefore, close supervision is essential.

Although NPLs slightly declined in June compared to May, macroeconomic problems like diesel shortages, FX scarcity (and the resulting parallel market), wildfires, and other climate issues could worsen delinquency levels in the months ahead.

Furthermore, separating NPLs into restructured vs. non-restructured loans shows that most delinquency originates from restructured loans:

Additionally, analyzing NPLs by credit type reveals rising risk in some loan segments:

All credit types have seen higher delinquency in recent years. Particularly in 2024, SME loan NPLs rose by 0.71%, while other segments increased around 0.55%.

Restructured Loans

Restructured loans—those that have had their payment schedules modified—are more prone to default and currently account for about 20% of total loans. Some banks have tried to reduce their restructured portfolio, while others continue to apply this strategy.

As noted in a previous blog post:

“In the past, a loan was restructured when the borrower, for some (usually temporary) reason, couldn’t meet payments. Case by case, the lender would decide whether to adjust the schedule by reducing rates, extending terms, or lowering installments to avoid deterioration. However, if the client currently cannot pay, it increases the risk that they won’t be able to pay in the future.”

Permanent Investments

According to the Financial Entities Chart of Accounts Manual, permanent investments:

Include deposits in financial intermediation institutions, deposits at the Central Bank of Bolivia (BCB), debt securities acquired by the institution, and non-tradable public debt certificates. These investments are not easily convertible into cash or, though liquid, the institution intends to hold them for more than 30 days.

Composition

The chart below shows the composition of these investments by account type:

The largest concentration is in account 167, which corresponds to restricted availability investments, referring to:

“…securities issued by national or foreign entities that are currently restricted in availability due to being pledged under a repurchase agreement, encumbered as additional reserves, pledged as collateral, etc.”

This account includes about 25 sub-accounts related to repos, additional reserve requirements, guarantees, restrictions, and contributions to various guarantee funds. The next chart shows the breakdown by purpose:

Most of these restricted permanent investments are held as shares in various government-backed funds aimed at promoting housing and productive credit.

By Currency

In recent weeks, with falling international reserves at the BCB and a shortage of U.S. dollars in the economy, the role of banks in managing foreign exchange has come under scrutiny. Authorities have claimed that private banks do hold dollars but may be profiting from the situation through high commission margins¹.

The following chart confirms that most permanent investments are indeed denominated in foreign currency:

Although these appear as dollar-denominated assets on banks’ books, they were transferred to the BCB to establish guarantee funds. In principle, the BCB should return these funds as the underlying guaranteed loans are repaid—a process that could take several years.

Liabilities

Liabilities are a key source of funding for financial institutions. They reflect banks’ obligations to the public (deposits), companies (current accounts), and institutional investors.

Recently, concerns about banks’ ability to return deposits have led some customers to request withdrawals. This has pressured banks to source funds quickly to meet redemptions.

The next chart shows the evolution of the system’s liabilities, from December 2015 to the most recent quarter:

Notably, in December 2023, there was a spike in account 280, related to public companies. This was due to a reclassification from private pension fund (AFP) deposits to the new Gestora Pública, which now manages pension assets. Nearly 40% of banking system funding is now concentrated in a single institution, creating liquidity management challenges and a potential concentration risk. The reclassification was reversed in June 2024.

Also evident is that the banking system’s liabilities have barely grown in 2024. If banks can’t attract deposits, they won’t be able to sustain lending—their main business. Their only options are to raise deposit rates or negotiate directly with the Gestora for liquidity. Either way, since most loans (e.g., housing and productive credit) have fixed rates, raising funding costs hurts profitability.

An alternative view is to classify liabilities by deposit type:

Savings accounts declined in June 2024 compared to December 2023, while time deposits and checking accounts grew slightly. This could indicate that banks are negotiating directly with the Gestora or large firms to retain treasury balances—likely by offering higher rates. In an inflationary and dollar-scarce environment, clients need to be compensated to keep their funds in the banking system.

Growth

How have deposits from the public evolved?

In general, obligations have continued to grow year-on-year, but at declining rates:

Again, caution is needed: as with loan growth, the exit of Banco Fassil in 2023 distorted the base. Since then, total deposits have not yet returned to pre-liquidation levels.

Entity-level growth data shows:

Most banks are struggling to attract new funds. While they still show some growth compared to the same month the previous year, the pace is much slower than in prior years.

Deposits by Currency

Another important aspect is the share of deposits denominated in foreign currency. This is illustrated in the following chart:

To interpret this chart correctly, one must consider the accounting reclassification of AFP deposits to the Gestora Pública. Up until December 2022, deposits included AFPs. For a while, these were separated, but the change was later reversed.

Income Statement

Lastly, while this entry does not delve into the income statement in detail, the following chart presents the financial results of the Bolivian banking system as of June for the last three years:

The chart shows that the overall business volume has increased in recent years and that by June 2024, the banking system reported a net result that outperformed the same month in previous years. However, these figures must be interpreted cautiously, as they need to be adjusted for inflation, exchange rate movements, and relative to capital and risk exposure.

Additionally, there is a slight shift in the sources of income, moving from financial income (primarily from loans) to operational income (mainly commissions). This shift has both advantages and drawbacks:

• Advantages: A more diversified income stream makes institutions less vulnerable to market shocks.
• Risks: If the increase in commissions is driven mainly by currency exchange services, it may not be sustainable in the long run.

Conclusion

Not much has changed in Bolivia’s banking system over the last quarter. The macroeconomic problems facing the country continue to affect the financial sector’s ability to act as an intermediary. Issues such as non-performing loans (NPLs) and a high share of restructured loans persist, although both indicators remained stable in the last month.

However, this should not be interpreted as a sign of resolution. Ongoing currency market distortions (dollar shortages and parallel exchange rates) are already affecting various economic sectors and could impact banks in the coming months. Additionally, forest fires and extreme weather conditions in the eastern part of the country may also increase loan delinquency in the affected regions.

Some new patterns are emerging. For instance, according to INE, 12-month inflation reached 3.84% in June and is trending upward. If inflation expectations continue to drift and become embedded in economic decisions, inflation could accelerate. In this context, economic agents may shift towards assets that better preserve purchasing power, triggering disintermediation from the banking system.

This trend is already visible: bank liabilities have stagnated throughout the year. If banks do not offer more attractive interest rates, they risk losing deposits and, consequently, their ability to lend.

Finally, because approximately 60% of the loan portfolio is fixed-rate by regulation, banks have limited ability to pass on higher funding costs to borrowers—potentially hurting profitability even further.