Nicaraguan Banks Close 112 Branch Offices and Windows
Over 2,000 bank employees have lost their jobs as part of the cost of the political crisis
By Mabel Calero (La Prensa)
HAVANA TIMES – The Nicaraguan national financial system has paid a high economic price for the two years of political crisis. The Central Bank itself admits this in its statistics, even though it only publishes them bit by bit. According to this official data, between 2018 and 2019, the banks closed 112 branch offices and windows, leaving 2,251 people unemployed.
Up until April 2018, 612 branch offices and bank kiosks were functioning in the country, generating employment for 11,484 workers. Of these, 267 were in Managua and 345 in the different departments. The geographic spread was helping Nicaragua reduce the gap in banking use, since it had one of the lowest indexes of this in Latin America.
However, by November 2019, eighteen months after the political crisis that exploded in April 2018, the Central Bank’s capacity to attend to the public had been reduced to 500 branches and windows: 213 of them, or 54 less, in Managua; and 58 fewer in the departments, where only 287 were left.
Most of the closures occurred in 2019, in the full depths of the recession. In that year alone, 63 of the branches closed in the country – 32 in Managua and 31 in the departments – compared to 49 that had been shuttered the year before, according to statistics provided by the BCN.
In this way, the national bank’s level of attention fell below the levels of 2016, when it maintained 589 locales for financial attention. This represents a serious reversal for a country which already had a low level of bank use and access to bank credit.
Reduced loan activity
Economist Nestor Avendaño declared that the withdrawal of deposits and the contraction in credit now begins to be reflected in the closure of more branches and kiosks.
“Deposits are the banks’ current liabilities: when they begin to fall off, their assets fall, and the assets are the loans. The results are reflected in the closure of windows and branches of the country’s commercial banks, which in turn implies less access to the public. In other words, they can’t realize transactions involving financial intermediation at the same level, and of course the country’s economic and financial transactions, both external and internal, aren’t as easily facilitated. That’s the repercussion. In the places where they’ve closed, the user has difficulty accessing the bank,” declared Avendaño.
The Nicaraguan Foundation for Economic and Social Development (Funides) concurred with Avendaño, noting that the closure of branches and windows is occurring because the financial system has less credit activity.
“This is an additional manifestation of the contraction of the financial sector as such. They’ve had to physically contract because there’s less credit activity,” Funides specified.
The organization notes that even though there’s been some recovery in deposits, the same hasn’t been true of credit, or of the inventory of branches and bank windows.
“Even though it’s true that there’s been a change in tendency as regards deposits in the last months, there are some important indications that we should be watching how the fixed term deposits are doing, since these are not showing a sustained recovery. Further, we see that credit hasn’t managed to raise its head: in November (2019) credit only increased by US $3 million, although in October it had increased by US $14 million. The recuperation of credit faces a major obstacle at this time, and it’s that the banks are having difficulties finding credit-worthy customers in the economy, people to whom they can offer financing,” the organization pointed out.
Gross profits reduced
Behind the closures of bank windows and branches there’s also the reduced growth of the sector’s profits. Up until November of last year, profits had been reduced by 39.4 percent with respect to their margins prior to the economic crisis that began in April 2018. That is, as the banks earn less, their possibility of maintaining the locales becomes more complex.
“The profits are another problem. They’ve been falling, because they aren’t awarding loans. The principal component of a bank’s profits are the profits from financing, understood as the interest paid on loans. Therefore, the bank’s profit margin has diminished, there’s a drastic reduction in the entire banking and commerce system’s profit margin and capital and if the economy continues contracting, they’re going to continue closing more branches,” Avendaño concluded.