EL SALVADOR: CREDIT UNIONS AND WORKERS BANKS READY TO FACE

UNCLAS SAN SALVADOR 001240

STATE PASS USAID/LAC
STATE ALSO PASS USTR
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON ETRD EINV ES
SUBJECT: EL SALVADOR: CREDIT UNIONS AND WORKERS BANKS READY TO FACE
FINANCIAL CRISES

REF: SAN SALVADOR 1238 (NOTAL)


1. SUMMARY. The Federation of Workers Credit Unions and Workers
Banks (Fedecredito),which represents 48 credit unions and 7 workers
banks, describes itself as well-prepared for the current
international financial crisis and for domestic instability. They
plan to increase their 35% reserves requirement by an extra 5%.
Twenty percent of their deposits are in liquid assets, and they have
extra contingency lines of credit available. So far, Fedecredito,
which will distribute around $200 million in remittances in 2007,
has not seen any significant change in remittances. Fedecredito
appears to be at least as liquid as the formal banking sector. END
SUMMARY.


2. On October 28, Econoff met with Macario Armando Rosales Rosa and
General Manager Ovidio Edgardo Magana of the Federation of Workers
Credit Unions and Workers Banks (Fedecredito). Fedecredito is an
association of 48 credit unions and 7 workers banks established in

1938. Their members operate 108 service facilities, especially
covering hard-to-reach rural areas. As of August 31, the association
had $182.9 million in deposits and 158,787 outstanding loans worth
$559.5 million. Thirty-three percent of their loans are in housing,
33% in consumer credit, and 30% in micro and small business.


3. Rosales did not expect the international financial crisis to
have much effect on Fedecredito. Fedecredito has been growing by
around 40% during the last two years and continues to grow this
year. They have, however, taken several measures to counteract any
effects of the crisis. Twenty percent of their deposits are
invested in liquid assets. They plan to increase their 35% reserve
requirement by 5%, above that of the commercial banks. Fedecredito
has an available line of credit with a bank from the Netherlands and
additional credit available with the Central American Bank for
Economic Integration (CABEI). The credit unions are also acquiring
credit lines from private investors. Fedecredito has advised member
institutions to be more careful in their analysis for granting loans
and to focus loans on micro, small and medium businesses.


4. Fedecredito has entered into agreements with several remittances
agencies, including MoneyGram, Viamericas Corporation, and
Microfinance International Corporation (MFIC),to facilitate the
payment of family remittances in El Salvador. During 2007 they
handled around $100 million in remittances, and they project to
handle $200 million in 2008. Their goal is to get 30% percent of
the roughly $3.7 billion remittance market. Rosales said that, thus
far, they have not seen any significant changes in the remittances
they handle. In his opinion, Salvadorans change jobs more easily
than other immigrant communities, so he did not expect an economic
downturn to have a big effect on overall remittances.


5. COMMENT: With a high reserve requirement and liquid assets,
Fedecredito appears to be at least as well positioned financially as
the commercial banking sector. End Comment.

BLAU