VZCZCXYZ0001
RR RUEHWEB

DE RUEHSN #1084/01 2622015
ZNR UUUUU ZZH
R 182015Z SEP 08
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 0071
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN SALVADOR 001084 
 
STATE PASS USAID/LAC 
STATE ALSO PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ES
SUBJECT: SALVADORAN BANKING SECTOR PREPARED FOR "NORMAL CATASTROPHE" 
IN RUN-UP TO ELECTIONS 
 
REF: A. SAN SALVADOR 876 
     ¶B. SAN SALVADOR 187 
 
¶1. (SBU) SUMMARY.  According to Carlos Caceres, Executive Director 
of the Salvadoran Banking Association (ABANSA), the Salvadoran 
banking sector anticipates a 7% drop in deposits preceding the 2009 
elections, comparable to the drop before the 2005 Presidential 
election.  The banking sector is prepared for a "normal 
catastrophe," however, and has enough liquidity to weather a 20-30% 
drop.  Except for a drop in deposits earlier in the year, likely 
caused by tax issues, the sector has not seen any unusual capital 
flows.  The banks are concerned, though, about an increase in 
delinquent loans.  The Salvadoran banking sector, now fully owned by 
international banks, is more stable and has deeper lines of credit 
than in the past.  Barring other factors, like a natural disaster, 
the system is unlikely to face a panic in the run-up to the 2009 
elections.  END SUMMARY. 
 
¶2. (SBU) Following press and private speculation about potential 
liquidity issues following a drop in deposits (ref A), Econoff met 
with Carlos Caceres, Executive Director of the Salvadoran Banking 
Association (ABANSA) to discuss stability in the financial sector. 
ABANSA projects a 7% drop in deposits in the run-up to January and 
March 2009 elections, comparable to what they experienced before the 
2005 Presidential election.  Caceres said that, although the 
(leftist) FMLN had a much higher chance of winning in 2009 than in 
2005, they were keeping projections the same because of the FMLN's 
far more moderate rhetoric.  So far, the banking sector had not seen 
any unusual capital flows.  Caceres attributed a large drop in 
deposits between April and May to tax payments and other tax issues, 
noting that deposit levels have already rebounded. 
 
¶3. (SBU) ABANSA estimated that banking sector reserves were enough 
to handle a "normal catastrophe," or 20% drop in deposits - for any 
reason, not just the election, Caceres stressed - and the Central 
Bank more optimistically thought the sector could handle a 30% drop. 
 ABANSA member banks are currently meeting every two weeks to review 
liquidity issues, and will start meeting weekly as the elections 
draw nearer.   Likewise, the Central Bank had increased its reserves 
by 6%.  While Caceres did not expect a "bank run" scenario, the 
sector wanted to be prepared.  He noted, however, that this meant 
the banks' reserves were not being invested or used for new loans. 
 
 
¶4. (SBU) The sector's biggest concern was an increase in delinquent 
loans over the past year.   Right now, the banks were monitoring the 
situation, but the state-owned Multi-Sector Investment Bank (BMI) 
and other entities had lines of credit ready for any bank that found 
itself in trouble because of bad loans.  Caceres also noted that, 
because of global factors, credit was becoming more expensive 
worldwide.  In El Salvador, for example, a loan that would have been 
at LIBOR a year ago was now LIBOR plus 2.  (Comment:  Given recent 
developments in the U.S. financial markets with Lehman Brothers, 
AIG, etc., we expect that credit will continue to tighten in El 
Salvador as well.  End comment.) 
 
¶5. (SBU) Separately, Caceres discussed ABANSA's new financial 
education program, which the banking sector promised to offer as 
part of its agreement with the GOES to stave off state-mandated 
interest rate caps (ref B).  Working with local non-government 
organization FEPADE, they had provided classes to about 10,000 
people and were teaching 3-4,000 more per month.  The program 
focused on three key areas: family budgeting, savings, and credit. 
The early classes included many bank employees, who the customers 
commonly ask for advice.  After the election, ABANSA will expand 
their program, including working with opinion leaders to stress the 
importance of good financial education. 
 
¶7. (SBU) Caceres stated that ABANSA was not participating in the 
GOES's new financial education program, announced August 27.  In the 
pre-election period, he added, the GOES was trying "to do everything 
now, now, now."  As a result, the GOES program will present a very 
broad range of topics, including money laundering and investment 
funds, to a massive audience.  ABANSA, he said, thought this was too 
broad to be effective.  Budgeting, he said, was the single most 
important thing Salvadorans needed to learn about financial 
education. 
 
¶8. (SBU) COMMENT.  The Salvadoran banking sector is now fully owned 
by international banks, including Citibank, HSBC, and BanColombia. 
Those banks have far deeper international lines of credit to tap, 
and the banking sector is more stable as a result.  They are not 
immune to shocks from the U.S. financial system and that will have 
ripple effects in the Salvadoran banking sector.  However, the 
banking sector is well-prepared for any system shocks, and, barring 
 
an uncontrollable event like a natural disaster, the system is 
unlikely to experience a panic in the run-up to the 2009 elections. 
END COMMENT. 
 
Glazer