Central bank relaxes bank suspensions - Uruguay

Private bank Banco de Credito may conduct salary and debt payments on behalf of clients, while its clients and those of suspended banks Banco Montevideo and Banco Caja Obrera can use credit cards issued prior to the suspension.

As the country's financial system returned to normality this week after a four day banking holiday July 30-August 2, local bank Banco ACAC reported it had opened 3,000 new accounts on Monday and Tuesday, including 1,000 corporate accounts.

However, the central bank extended the suspension of Uruguay's largest privately held bank Banco Comercial for 30 days, international ratings agency Fitch Ratings said in a statement, prompting the agency to downgrade Comercial's long term foreign currency rating to 'DD' from 'CCC'. Banco Comercial's long term foreign currency rating has also been removed from Rating Watch Negative where it was placed on May 28, 2002.

The Central Bank will use the suspension to create mechanisms for the return of demand and savings deposits, and at the very least delay payment of other obligations, including time deposits. Such mechanisms will likely result in some form of restructuring, Fitch said.

Meanwhile, the country's banks have expressed doubts about a central bank measure that requires all financial institutions to provision new dollar-denominated deposits 100% and peso-denominated deposits 75%. Although the measure is only temporary and designed to ensure liquidity in the financial system, the banks warned they would have to issue fewer loans and there was still no reason for them not to transfer such funds to offshore accounts that would not be subject to the requirement.

In related news, the central bank revealed that if it were not for a partial deposit freeze at state banks Banco Republica (BROU) and Banco Hipotecario, their reserves of US$3.4bn would have been depleted by US$2bn this month.

Depositors had already withdrawn US$1bn from the two banks since January and the US$2bn at risk included US$697mn in the form of time deposits scheduled to come due between July 23 and August 20. Congress passed a bill over the weekend that effectively reprogrammed the term deposits at the two banks.

Uruguay, once known as the Switzerland of Latin America because of its solid banks and high standard of living, has watched its banking industry fall apart over the last few months because of a series of financial scandals and spill over from Argentina's financial crisis.