Recently, ASFI published the financial statements of the Bolivian banking system as of September 2024. With this new information, this post reviews some figures from the Bolivian banking system.

The main focus is on the asset side of the balance sheet—i.e., where banks have invested their own resources (equity) and the resources borrowed from the public (liabilities).

Overview: the Balance Sheet

The Balance Sheet is a snapshot of a financial entity’s status at a given moment. It presents the entity’s assets, liabilities, and equity.

In the case of banks, assets are the resources banks have invested—such as loans granted, deposits in other banks, buildings, and equipment. Liabilities are the resources banks have borrowed—such as customer deposits and loans from other banks. Equity is the difference between assets and liabilities—i.e., the bank’s own capital.

Structure

To gain perspective, the following chart shows the composition of the banking system’s balance sheet in summarized form at three cutoffs: September last year, and then August and September of this year. This helps illustrate how the structure has evolved both over the year and compared to the previous month:

First, compared to September 2023, the balance sheet has expanded significantly—by almost USD $2 billion. It’s important to recall, however, that Banco Fassil had been liquidated a few months earlier, implying that at that time the system experienced a significant contraction, which has since been absorbed by the remaining banks.

Moreover—and perhaps more relevant given current conditions—the system has expanded its balance sheet by just over USD $300 million compared to last month. This increase is mainly due to the rise in liquid assets and, to a lesser extent, a slight increase in the loan portfolio. Interestingly, both savings accounts and checking accounts have grown and have primarily financed liquidity, and to a lesser extent, the credit portfolio. This will be examined in more detail later.

Assets

The assets of financial institutions include cash held in vaults and ATMs for daily operations, loans granted (portfolio), investments in financial instruments, and real estate needed for operations. However, the most important part is the loan portfolio, as it generates the highest income for banks, and therefore, their financial performance depends on its proper origination and management.

Additionally, due to uncertainty caused by the economic slowdown, the fall in Net International Reserves (NIR) threatening the exchange rate regime, and the resolution of Banco Fassil, financial institutions have increased their cash holdings—both in liquid assets and very short-term investments (temporary investments)—to prepare for potential unexpected deposit withdrawals. Thus, liquidity management is a key issue to monitor closely.

The chart below shows the evolution of the banking system’s assets since 2015. It can be seen that the system has nearly doubled during this period. However, the system has not yet fully absorbed the exit of Banco Fassil, as assets remain below December 2022 levels, although a recovery is expected in the coming months.

Additionally, three points are worth highlighting. First, so far in 2024, the banking system’s assets have only grown by USD $59 million—a relatively low figure compared to previous years. Second, while the loan portfolio is growing, its growth rate is also low compared to previous years. Finally, there is an interesting reallocation of liquidity from cash to temporary investments. This shift may indicate that banks are trying to earn returns on their excess liquidity in a context of slow credit growth. On the other hand, if these investments are being made in BCB securities, it may also reflect a contractionary monetary policy aimed at reducing liquidity in the system—possibly offsetting the recent credit growth to the public sector.

By institution:

Cash & Equivalents

As stated in the Chart of Accounts for Financial Institutions, cash and equivalents are defined as:

Represents the cash held by the institution in vaults, sight balances at the Central Bank of Bolivia, in the head office and foreign branches, in domestic and foreign banks and correspondents, as well as the holding of precious metals.
Also includes checks, other immediately collectible commercial documents, and pending electronic payment orders.

It’s worth noting—though outside the scope of this entry—that the legal reserve requirement set by the Central Bank of Bolivia (BCB) applies to banks’ liquid assets, requiring them to hold (“encajar”) a portion of their deposits at the BCB. This regulation compels banks to maintain a minimum level of liquid assets on their balance sheets, proportional to the volume of deposits they receive.

Composition

As seen in the chart below, the banking system’s cash and equivalents have remained relatively stable around USD $4 billion, with roughly 30% held in physical cash to ensure daily operations (withdrawals, ATMs, etc.).

By institution:

Temporary Investments

According to the ASFI chart of accounts for financial institutions, temporary investments are:

Investments in deposits in other “financial intermediation institutions,” deposits at the Central Bank of Bolivia, and debt securities acquired by the entity. These investments are made, according to the institution’s investment policy, with the intent of earning an appropriate return on temporary excess liquidity and can be converted into cash within no more than thirty (30) days.

Here is a closer look:

Composition

The chart below shows the composition of temporary investments as of each December since 2015, and as of September 2024:

As shown, temporary investments have averaged around USD $4.2 billion. In 2023, there was a greater concentration of these investments in the BCB, and this trend has continued in 2024. These investments may be “made in fixed-term deposits, notes, bonds, and other debt securities,” and, as previously noted, it appears the BCB is offering more attractive interest rates, prompting financial institutions to invest more in these instruments.

This situation should be monitored closely, as it may result from the Central Bank’s monetary policy. On one hand, the BCB may be providing credit to the public sector, increasing the monetary aggregates, which—if not accompanied by increased production—could cause inflation. Thus, to contract liquidity, the BCB may be offering higher interest rates to attract financial institutions to invest in BCB securities. In terms of magnitude, the nearly USD $1 billion increase in temporary investments in the BCB represents about one-fifth of last year’s fiscal deficit.

By institution:

Loan Portfolio

This section analyzes the behavior of the loan portfolio of the Bolivian banking system. It is worth noting that the loan portfolio is the main source of financial income and undoubtedly the most important asset of Bolivian banks.

Growth

A first question is how the loan portfolio has grown in recent years. This is important in many ways, since both excessive growth and lack thereof can signal other types of issues. On one hand, rapid growth may indicate a credit expansion which, if poorly managed, could lead to solvency problems in the future. On the other hand, slow growth may signal a contraction in aggregate demand, possibly reflecting issues in the real economy.

In the following chart, we observe the year-over-year growth (current month vs. same month the previous year) of the loan portfolio, excluding provisions and accrued interest receivable:

The chart shows that credit grew strongly in the second half of the 2010s, reaching its peak around March 2011. From then on, although it remained in positive double digits, growth started to decline. Following the liquidation of Banco Fassil in March 2023, portfolio growth turned negative.

Although this suggests a slowdown in lending, it doesn’t necessarily mean individual banks are reducing credit placements. The issue is that, after Banco Fassil exited in early 2023, growth calculations were based on a higher prior base that included Fassil’s portfolio. Thus, the sudden drop followed by negative growth in the system’s overall loan portfolio reflects that other banks have not yet compensated for Fassil’s exit.

This is made clear in the growth chart by institution:

From the above, we can see that loan portfolios have slowed significantly at most institutions, many of them growing even less than during the early pandemic months. This situation should be closely monitored, as it may reflect a broader economic slowdown and weaker credit demand.

Finally, in terms of outstanding balances, the next chart shows monthly growth in the loan portfolio:

This chart shows that month-to-month loan portfolio activity has been declining relative to 2015.

Non-Performing Loans (NPL)

The non-performing loan (NPL) ratio—or “mora” as it’s commonly called—includes all loans that are more than 30 days overdue, expressed as a percentage of the total portfolio.

The next chart shows the evolution of the NPL ratio since January 2003. As seen, in 2003 delinquency peaked at around 23%, which—based on previous analysis—would be sufficient to declare the banking system insolvent. It’s important to remember that the early 2000s were a particularly challenging time for the Bolivian economy.

Since then, however, the NPL ratio has remained under control. In 2007, it returned to single digits, and by 2013 it reached a low of 1.55%. Afterward, it rose slowly but steadily to about 1.8% until the pandemic, when emergency measures like refinancing, deferrals, and loan rescheduling caused a regulatory decline in reported delinquency.

After the pandemic, the NPL ratio began climbing again, and the trend is clearly upward—posing challenges for both institutions and financial regulators. Focusing on data since 2013:

If this trend goes unchecked, it could eventually pose solvency problems for the financial system. Moreover, in a context of macroeconomic uncertainty, a high NPL ratio signaling that a bank (or banks) may be at risk could trigger a bank run. Importantly, for such a run to happen, the bank doesn’t actually have to be insolvent—it’s enough for depositors to believe it is. That’s why financial authorities must monitor this indicator closely and take preventive measures.

It’s worth noting that although the NPL ratio remained stable between August and September, macroeconomic issues such as fuel shortages, dollar scarcity (and the resulting rise in the parallel exchange rate), forest fires, and others could eventually lead to an uptick in non-performing loans.

Finally, when breaking down delinquency between restructured loans and others, most defaults originate from restructured loans, indicating that these are the primary source of stress for banks:

By institution:

Restructured Loan Portfolio

The restructured loan portfolio, which is more prone to default, remains around 20% of the total portfolio. Although some institutions have tried to reduce it, others continue to apply rescheduling policies. Therefore, what was stated last year in another blog post remains relevant, where it was argued:

“[…] in previous years, a loan was restructured when the borrower indicated that, for some perhaps temporary reason, they would be unable to meet their payment obligations. Case by case, institutions would decide whether to modify the original payment plan by reducing interest rates, extending terms, or lowering installments to prevent the operation from deteriorating over time. However, if the client cannot pay now, it is riskier to assume they will be able to in the future.”

First, the restructured portfolio has been declining in recent months as part of the loans are maturing and, additionally, the overall portfolio continues to grow:

Note that the problem with restructured loans is their higher likelihood of default, since they have already shown signs of financial stress. Therefore, it is important to monitor not only delinquent restructured loans but the entire restructured segment. The following graph shows the restructured portfolio in millions of USD, broken down by loan status:

Long-Term Investments

The Manual of Accounts for Financial Institutions states that long-term investments:

“Include deposits in financial intermediation entities, deposits in the Central Bank of Bolivia, debt securities acquired by the institution, and non-marketable public sector debt certificates. These investments are not easily converted into liquid assets or, even if they are, the institution has declared an intention to hold them for more than 30 days according to its investment policy.”

Composition

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

Note that the highest concentration is in account 167, which includes restricted availability investments, defined as:

“Investments in securities issued by national or foreign entities […] whose availability is currently restricted, either because they are subject to repurchase agreements, used to meet additional reserve requirements, or pledged as collateral […]”

By institution:

Liabilities

Liabilities are a source of funding for financial institutions and are vital to their proper functioning. Liabilities include obligations (debt) to the public (deposits), to businesses (checking accounts), and to institutional investors.

In recent months, there has been considerable speculation regarding the banks’ ability to return funds to the public, prompting some users to request withdrawals. This has created liquidity challenges for banks, as they’ve had to rapidly secure funds to meet withdrawal demands.

The following chart shows the evolution of liabilities in the banking system as of each December since 2015, and additionally includes the latest available quarter:

Note that beginning in December 2023, account 280, reserved for public enterprises, shows an increase. This is due to the accounting reclassification from the pension fund managers (AFPs) to the Gestora Pública, which now manages pension funds. As shown, nearly 40% of bank funding is concentrated in a single entity, raising concerns over liquidity management, since it gives significant market power to the fund manager. This reclassification is reversed in September 2024, as shown in the graph.

From the same chart, we see that liabilities have grown little in 2024—by about USD $42 million per month. If banks cannot attract deposits from the public, they cannot sustain credit placements, which is their main business and revenue source. Thus, their options are to raise interest rates to attract deposits or negotiate directly with the Gestora Pública for liquidity, also by offering higher rates. Either way, because mortgage and productive credit rates are fixed, increasing deposit rates will reduce bank profitability.

Alternatively, we can reclassify liabilities by deposit type:

From this chart, we observe that savings accounts have slightly declined compared to last December, while term deposits and checking accounts have increased—the former significantly. This can be attributed to various factors. For instance, banks may be negotiating with the Gestora or large corporations to hold their treasury balances in banks. Achieving this would require offering higher interest rates, since inflation and dollar shortages erode the boliviano’s purchasing power. Thus, banks would need to compensate their clients to encourage them to keep their funds in the banking system instead of shifting to other assets that may better preserve value under current conditions.

Growth

How have banking system liabilities evolved? In general, bank liabilities have continued to grow when comparing each month with the same month of the previous year, but the growth rates are declining:

This graph must be interpreted with caution since, as with the credit portfolio, after the liquidation of Banco Fassil, the base data used to calculate growth are larger than current months, as the banking system has yet to fully recover the level of deposits held before the liquidation.

Looking at year-over-year growth data by institution:

From the chart above, it is evident that, in general, financial institutions are experiencing difficulties in attracting funds. Although they are still showing positive growth compared to the same month in the previous year, the growth levels are lower than in previous years.

Income Statement

Finally, although we will not go into detail, the financial results for the Bolivian banking system as of September for the last three years are presented below:

We observe, for example, that the scale of banking operations has increased in recent years, and that as of September 2024, the banking system has posted a net result that is comparatively better than in the same month of previous years. However, these results should be interpreted with caution since they should be adjusted for inflation and exchange rate movements, and compared relative to capital (and associated risk).

That said, there is a slight shift in the source of income from financial (portfolio) to operational (fees), with corresponding movements in costs. Moreover, in terms of operational income and expenses, although both are growing, expenses are rising at a faster pace.

Lastly, one component that has shown improvement is uncollectibility, which refers to provisions made for loans that are no longer expected to be recovered. This item has declined in recent years, which could indicate an improvement in loan quality. However, due to the reschedulings and refinancings carried out in recent years, this item may be underestimated.

By institution:

Conclusion

Bolivia continues to experience a slow-motion crisis that is gradually materializing in the financial system, particularly within the banking sector. Twin deficits (fiscal and external), accelerating inflation, and high social unrest that hinders production—and therefore economic growth—are the primary factors affecting the Bolivian economy.

This is reflected in the banking system, which shows some concerning patterns: a credit portfolio that is growing at a slower pace and a delinquency rate that, although it has remained around 3.5% in recent months, continues to show an upward trend. Additionally, the restructured loan portfolio, which is more likely to default, remains high, and institutions must manage it comprehensively.

Furthermore, data suggest that the Central Bank of Bolivia (BCB), in an effort to sterilize the expansion of credit—mainly to public enterprises—has been raising the interest rates on its securities to absorb the excess liquidity through the banking system. However, this comes at a cost, as it may slow the growth of the credit portfolio and, therefore, economic activity in the medium term.