QUITO (Dow Jones)--Ecuador's political and economic uncertainty have started to hurt the financial system, as net profits have fallen sharply so far this year.
Twenty-four private banks operating in Ecuador, plus the state-run Banco del Pacifico, posted a combined $72.3 million in net profit in the first four months of the year, down 37% from $115.55 million a year earlier, the Banking Superintendence said Monday.
Banco del Pichincha CA (PCH.GU), Banco del Pacifico and Banco de Guayaquil SA (BGYQY) topped the list, with $17.75 million, $13.51 million and $10.77 million in earnings respectively, according to the report.
The U.K.'s Lloyds TSB Group PLC (LYG) and U.S.-based Citigroup Inc. (C), the two foreign banks included in the list, were responsible for 3% of the reported income.
According to the official data, assets in the banking system totaled $16.03 billion, with $14.29 billion in liabilities.
Ecuador has been hit by falling oil prices this year, while political uncertainty tied to the programs of left-leaning President Rafael Correa have scared off investors.
Correa, a self-proclaimed socialist, took office in 2007. After a new constitution was approved, he won a new four-year term this year and has promised to carry out more radical reforms.
His government, for example, has recently defaulted on two series of Global bonds.
Fernando Pozo, head of the Association of Private Banks, said that in the last four months deposits in the financial system have fallen by around $750 million.
According to Pozo, the fall in deposits is due to lower oil prices and the decrease in remittances from Ecuadorians abroad.
Additionally, the government has fixed interest rates and the government's banking superintendent hasn't allowed banks to charge clients for some services.
Monica Vergara, a researcher at IDE Business School, said that the fall in banking deposits basically is due to the fear that Correa could abandon the dollarization system, leading to increased spending instead of savings.
Moreover, in the last months, the Ecuadorian financial sector has implemented several measures to reduce its exposure and bad debt risk, including restrictions on loans, higher interest rates and reduced payment periods.
Jaime Carrera, secretary of the Fiscal Policy Observatory think tank, said that the uncertainty will continue in the future and could become worse because President Correa has said that his recent election win will mean deepening reforms in his socialist plan.
"To talk about a radicalization doesn't generate trust and a good environment to attract investment and to generate wealth," Carrera said.
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