NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today published a dashboard on the Venezuelan banking system as of 3Q15. The report highlights the sector's principal risks and comments on the potential ratings impact of the current economic crisis.
The Venezuelan operating and regulatory environments continue to contribute to higher risks for the banking sector. Banks remain highly exposed to the speculative grade sovereign (Long- term Issuer Default Rating 'CCC') through holdings of public sector securities. Regulatory caps on lending rates and compulsory loan requirements have constrained the banks' ability to manage credit risk. Similarly, regulatory floors on interest paid on savings and term deposits have supported increased reliance on demand deposits, resulting in a material tenor mismatch between the banks' assets and liabilities.
Fitch underscores how Venezuelan banks have relied on customer deposits for 98.6% of funding at September 2015. Although not Fitch's base case, a relaxation of capital controls or an acute macroeconomic adjustment could cause a marked decline in liquidity. In addition, accelerating inflation (180.9% for 2015) and deficit monetization has fuelled rapid deposit growth, steadily pressured capital, and distorted loan quality and profitability indicators.
In Fitch's view, further devaluation of the currency will have less of a positive impact on bank earnings than previously as banks have reduced their dollar positions. In addition, as securities holdings are predominantly classified as 'held to maturity,' the greatest impact will be on capital rather than earnings, although asset growth will likely offset any gains on this front.
Additional information is available on www.fitchratings.com
Venezuelan Banks: 3Q15 Dashboard