VZCZCXYZ0001
RR RUEHWEB

DE RUEHMU #0343/01 0902311
ZNY CCCCC ZZH
R 312311Z MAR 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3963
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

C O N F I D E N T I A L MANAGUA 000343 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC AND EEB 
TREASURY FOR SARA SENICH 
 
E.O. 12958: DECL: 03/30/2019 
TAGS: EFIN ECON ETRD PREL PGOV NU
SUBJECT: NICARAGUA: BANKERS REPORT STABILITY, BUT NO GROWTH 
 
Classified By: Ambassador Robert J. Callahan for reasons 1.4 b & d. 
 
 ¶1.  (C) Summary.  Despite rumors of economic meltdown and 
possible capital flight, Nicaragua's highly dollarized 
banking sector appears to be holding its own.  Officials from 
the Superintendent of Banks (SIBOIF) and the Central Bank as 
well as prominent banking executives tell us that liquidity 
is good and exposure to badly performing loans is manageable. 
 Most high-net-worth Nicaraguans and well-capitalized 
companies minimized their exposure to risk in Nicaragua 
before President Ortega took office in 2007; the result is 
that most savings and checking accounts here are modest in 
size.  Regrettably, diminished access to credit from foreign 
financial institutions has fueled a reluctance on the part of 
Nicaraguan banks to provide financing for medium to long-term 
investments, which greatly hinders economic growth.  HSBC 
bank announced in January it would close its offices in 
Nicaragua, but its presence here was quite small (HSBC will 
maintain a representative office in Managua).  The head of 
SIBOIF privately told us that Citibank is looking to sell its 
Nicaraguan operations (which focus almost entirely on credit 
cards, but Citibank has made no public statements to this 
effect).  End Summary. 
 
Banks Weather the Storm... 
-------------------------- 
 
¶2. (C) Luis Rivas, General Manager of BANPRO (Nicaragua's 
largest bank with nearly $1 billion in assets) told econoff 
on March 11 that deposits remain stable, despite seasonal 
fluctuations in December and January.  According to Rivas, 
capital flight is not a problem; BANPRO,s depositors realize 
that better returns are simply not available elsewhere given 
the current international economic climate.  Rivas stressed 
that BANPRO, as a prominent local bank, enjoys solid and deep 
relationships with its depositors and shareholders, a factor 
that would minimize the risk of a run on deposits in a time 
of crisis.  Julio Cardenas, Executive Director of BANCENTRO 
(Nicaragua's second-largest bank with $750 million in 
assets), detailed a similar relationship with his bank,s 
depositors. 
 
¶3.  (C) Victor Urcuyo, the Superintendent of Banks (SIBOIF), 
assured econoff that the Nicaraguan banking system remains 
fundamentally sound.  All major banks maintain adequate 
liquidity and reserve levels, and in some cases they have 
exceeded SIBOIF mandates (banks here are required to maintain 
reserves of 16.25% of total deposits).  On the possibility of 
capital flight, Urcuyo observed that most wealthy Nicaraguans 
minimized their financial exposure to Nicaragua before 
President Ortega took office in January 2007.  Consequently, 
most deposits in the Nicaraguan banking system are modest in 
value.  Many businesses owned by wealthy Nicaraguan families 
maintain accounts here simply for working capital purposes. 
These depositors are unlikely to transfer much more cash 
outside of the country.  Note:  Deposits and loans 
denominated in U.S. dollars account for at least 70% of the 
total in the three largest banks in Nicaragua (out of the 
eight banks regulated by SIBOIF).  Urcuyo pointed out that 
while many local depositors view the dollar as a hedge, 
borrowers with loans denominated in dollars are highly 
vulnerable to a cordoba devaluation.  End Note. 
 
...But Withhold Financing for New Projects 
------------------------------------------ 
 
¶4.  (C) Both Rivas and Cardenas told econoff that the primary 
negative consequence of the global financial crisis for local 
 banks is the tightening of international commercial credit. 
Cardenas listed several established lines of credit that are 
no longer available to BANCENTRO from prominent U.S. 
financial institutions such as Wachovia.  In turn, Cardenas 
said, fewer financial resources are available to support 
loans here, particularly for clients requiring medium to 
long-term financing such as in construction, housing, and 
real estate development.  Such a scenario, compounded by 
contracting local and international demand, greatly 
contributes to retarded economic growth.  Local economists 
have revised their 2009 GDP growth estimates downward to 1% 
and perhaps even into negative territory. 
 
HSBC Pulls Out, Citibank Focuses on Credit Cards 
--------------------------------------------- --- 
 
¶5.  (C) HSBC announced in January that it would close its 
branches in Nicaragua, but would maintain a representative 
office in Managua.  HSBC's presence in Nicaragua was very 
small, with only $49 million in assets, created from its 2005 
purchase of Panama-based Banco del Istmo.  Urcuyo told 
econoff that Citibank, which launched operations in Nicaragua 
under its own name last September, is already looking to sell 
(Citibank has stated publicly its intention to stay in the 
Nicaraguan market). One reason why Citibank may be looking to 
sell is the fact that roughly 98% of its operations here 
focus on credit cards, a sector that, while extremely 
profitable the last few years, is now experiencing default 
rates of about 9%, way above the typical rate of 1-2%.  U.S. 
Department of Treasury advisors conducting a training 
workshop with the Nicaraguan counterpart to the U.S. FDIC in 
mid-March flagged this high default rate as a warning signal 
for the banking industry here. 
 
Comment 
------- 
 
¶6.  (C) While we expect the number of non-performing loans to 
rise in Nicaragua as a result of the international financial 
crisis, the major banks do appear to be maintaining 
liquidity.  Already the smallest in Central America (about 
$3.6 billion total assets in the entire financial system), 
Nicaragua's bankers have historically displayed little 
appetite or capacity to provide desperately needed credit to 
support medium or long-term investments.  While these 
conservative lending practices have been in place for many 
years, they now serve to protect the banks from the 
international financial crisis. 
CALLAHAN