Bank of the Year-El Salvador

Year: 2021

Winner: Bancoagricola

El Salvador’s Bancoagricola continues to dominate the country’s financial system, with assets nearly double the second largest bank in the system.

The bank leads in deposits, with 29.4% of the total, and in loans, with 27.9%, and was the most profitable bank in the country in 2020.

“In addition to its size, it has the strength of its franchise and he financial support of Bancolombia (parent company). Its diversified portfolio and low costs provide it with a stable profitability,” says Marco Orantes, director of SCRiesgo, a Central American rating firm.

Bancoagricola’s capacity to turn a profit in a difficult economic and political environment, and its innovation during the pandemic won it the Bank of the Year award for El Salvador.

“As the bank of Salvadorans, we are always looking for a way to reinvent ourselves to accompany the country. Our goal is to promote sustainable economic development to guarantee well-being for all people,” says CEO Rafael Barraza in a statement.

The bank’s success is even more impressive give a tough operating environment for the bank in 2021, which could continue in 2022.

The country’s economy contracted by 8.6% in 2020, according to the U.N. Economic Commission for Latin America and the Caribbean. The Commission forecasts 3.6% growth this year, slightly below the Central American average.

A key issue that has dominated analysis of El Salvador and its financial system since June 2021 has been the government’s decision to make Bitcoin legal tender.

Bancoagricola in September became the first financial institution in the country to authorize use of Bitcoin by its customers. They can use it to pay loans and credit cards, as well as make purchases from merchants, as long as they are part of the bank’s Wompi platform.

SCRiego’s Orantes says the banking system in general will need to address “a relevant and important risk is that tied to asset laundering.” This is crucial given the strict international oversight of rules to for anti-money laundering/counter-terrorism financing (AML/CTF)

In October, S&P Global lowered the bank’s outlook from stable to negative because of operating environment not the bank’s balance sheet.

The agency cited heightened risks of economic imbalances, which would create operating challenges for local banks.

Bancoagricola’s parent, Bancolombia, is also watching, but has been cautious. In an August earnings call, Bancolombia CFO José Acosta said the bank was complying with the provisions of the law, but stressed “we do not have any exposure in bitcoin.”

Agencies and investors are also watching the government’s 2022 budget funding needs to cover its forecast $1.25 billion deficit, which is equivalent to 4.5% of GDP. The government has relied on local banks in the past for financing, but research from rating agencies questions the capacity of El Salvador’s banks to increase funding.