Daily Archives: April 7, 2013

Bolivian banking system 101: is it profitable to save? do we have an alternative?

An interesting and clear economic analysis by Karina Moreno Sainz in El Deber:

How much banks pay savers?

El DeberSaving is the act by which a part of the possible present consumption is waived in order to achieve an increase of future consumption. This sacrifice requires compensation, which comes to be passive interest rate, sometimes, more than a prize, looks like a punishment.

In Bolivia, the interest rates for savings varies between the 0.94% payed by banks and 1.37% payed by mutuals [saving cooperatives], meaning that for every 100 Bolivianos who we save, in the best of cases, we receive Bs1.37 of pay per year. However, the real interest rate is what we receive, taking into account the loss of value of money due to inflation. Its approximate value can be obtained by subtracting to the nominal interest rate, the inflation. Doing the exercise, we fall into account that actually we don’t win, but lose the purchasing power of our money saved – 3.71%, i.e. by Bs100 saved today, we buy the equivalent to Bs96,29. It is clear that the banks do not promote saving for the altruistic purpose to protect it, but in order to make a profit by lending it. The active rate ranges between 6.34% for a mortgage loan and 18% for a consumer credit.

The legislation indicates that active and passive interest rates of the system of financial intermediation operations are freely agreed between the entities in the sector and the users. I don’t know at what point they are agreed, the reality shows us that they just pay that, so there isn’t much to choose from.

Before a banking oligopoly, economic theory holds that the State can act to improve the results of the market, through legislation, antitrust or the establishment of new financial institutions. I am inclined to a new regime of financial intermediation, which includes the regulation of interest rates, setting fair minimum standards and reasonable maximum levels. Otherwise, our savings will continue to lose its value and making others rich.

Economist

http://www.eldeber.com.bo/vernotacolumnistas.php?id=130405194321