URUGUAY BANKING CRISIS 2002

INTRODUCTION
The 1998-2002 Argentine Great Depression
triggered the withdrawal of non-resident deposits
which represented more than 50 percent of the
total deposits from Uruguayan Banks at the end of
the year 2001
Liquidity Squeeze coupled with burgeoning NPA
High level of Dollar denominated debt
OVERVIEW
Domination of Banking Industry Sector as %GDP
70 % of the denomination was the part
of foreign currency and forms the part of
short term instruments.
External debt was held by foreign investors all in
foreign denomination was 57% of the GDP.

Banking Sector NBFC Offshore banking

STATE AND FOREIGN INSTITUTIONS

After the 2002 debacle the number of

private banks reduced 21 to 12. Also
the public mortgage bank-11 % of the
banking system was restricted from
taking new deposits and focused more
on recovering bad loans. State
institutions account for more than half
of the financial sector and foreign
institutions accounts for most of the
rest.
 1998

HIGHLY DOLLARIZED BANKING SECTOR 1999

Due to depreciation of the peso, the share of dollar deposits 2000 9.4418
and credit rose sharply. Statistics at the end of 2005
reported that foreign currency deposits amounted to 85
2001 9.4418
percent of total non-financial resident deposits and credit
denominated in foreign currency to 71 percent of total
2002
credit. The deposits of non-residents account for about 23 10.4719
percent of total non-financial sector deposits.
2003 11.3393

2004 12.0996

2005 12.0996
 Peso/US$ Exchange Rate and Evolution of US$ Reserves
(January to December 2002

Official International Reserves (Left Axis) Exchange Rate (Right Axis)

3000 30

2500

2000
20
1500

1000

500 10
CURRENCY DISTRIBUTION
Currency Proportion Dollar deposit by nationality

Foreign Currency Local Currency Resident Non- Rsident

STRESS TEST

The 2006 FSAP stress tests focused on the impact of shocks on

banks’ capital adequacy (CAR) and liquidity ratios. The stress
tests on a bank-by-bank basis, as of June 2005.
They included sensitivity analysis with respect to the interest
rate, exchange rate, and credit risk, as well as
macroeconomic scenarios involving a domestic supply shock1,
a current account shock2, and a capital account shock3
MEASURES TAKEN
 POST CRISIS SITUATION
Stabilization Program
Economy started recovering in the tear 2003 and sharply
increase in 2004 at a rate of 12.4 %. GDP rose by more than
6.5 %. Inflation figures dropped down to 4.9 % from 26 percent
in 2002. Even though the export growth was impressive the
current account deficit widened due to high direct foreign
investments.
Improvement in Public debt outlook
The public-sector debt-to-GDP ratio has fallen from over 105 percent of
GDP in 2002 to 69 percent at the end of 2005 which is attributed to
increase in surpluses, appreciation of peso, high growth, and low
international interest rates and excess liquidity in banking system.

Macroeconomic Vulnerabilities
Government carries contingent liabilities arising from the state banks as
well as from the large public pension and insurance sectors. Dollar value
of domestic income is exposed to volatility. Even though the debt has
declined but it still remains high and depends on how well the
government can service it through proactive management strategy.