The solvency of financial institutions that are established in Uruguay remains stable, with the average capital of banks 50% above the regulatory minimum capital requirements, which includes credit, market, operational and systemic risks. In addition to this, the prudential regime of statistical forecasts established by the Superintendency of the Financial System (SFS) has helped banks assume portfolio losses at the peak of the economic cycle in order to cope with increased delinquency without the need for additional capital during downward trends.
In order to analyze the status of the banking system, the SFS performs stress tests that have satisfactory results from the impact of predetermined adverse scenarios. In terms of system average, regulatory capital of banks would be close to the regulatory minimum if there is a severe stress scenario, while in a less severe scenario the impact would be of low importance.
In 2014, the US Treasury medium and long term reference interest rates showed a fall as a result of the influx of capital to the United States, from adjusting the risk perception in relation to the rest of the world. This also resulted in a significant appreciation of the dollar against most currencies, and in Uruguay it had an impact on earnings of banks due to the exchange rate, which almost doubled compared to 2013. With international interest rates still low, and with a downward trend in the price of fixed income securities, banks directed their funds to increase domestic credit, which showed a rise of approximately 8%.
In 2014 loans in national currency rose $ 19,676 million (+ 14.7%) and foreign currency loans had an increase of USD 512 million (+ 6.8%). After adjustment for measuring the increase in credit without delinquency distortions and different exchange rates, we see that credit to the resident private sector grew by USD 1,077 million during the year, representing an annual net increase of 7.8%, showing a slowdown in growth compared to the previous year (16%). Debt in Uruguayan families increased moderately, closing 2014 at 25% with regards to annual income when bank debt is recorded (including with the Banco Hipotecario del Uruguay BHU) and debt with credit management companies. Delinquency remains at low levels, around 1.5% (2.4% for families in default in their debt obligations in local currency).
Deposits of the private non-financial sector in local currency increased by $ 12,112 million (9.1%) while in foreign currency deposits rose by USD 1,853 million (9.8%) which totals an equivalent increase in dollars of USD 2,323 million. This shows an annual growth rate of 9.3% adjusted by the exchange rate effect. Demand deposits and savings accounts are approximately 87% of total deposits, which remains stable due to the low interest rates on time deposits.
Bank results show an upturn after the effect of inflation adjustment applied in 2014, an improvement which is divided in similar proportions between increased profits due to exchange rates and increased operating profit mainly as a result of the increase in operating volumes. If credit demand moderates and international interest rates do not rise, bank spreads will remain under pressure in the short term.
Regarding the pension savings system, total accumulated funds reached $ 266,614,000 (approximately 20% of the product), this shows a higher number than the one million two hundred thousand affiliates as of December 31, 2014, and has a projected net profitability in "Unidades Reajustables UR" of 1.1% when calculated based on the historical performance of the last 5 years.
The stock market showed a 10% decrease in the total operating amount, which basically responds to a decrease in certificates of deposit placed in the primary market by the BCU and private banks. With regards to new funding, a total equivalent to USD 410 million was issued in negotiable bonds and financial trusts, which is 35% of the total instruments in the market at the end of last year. The stock market's contribution to medium and long term financing of companies represents approximately one third of the total funding, a percentage that has remained relatively stable compared to previous years and shows the importance of issuance of securities for funding.
Lastly, insurance companies' sales grew 13% on average in real terms over the previous year, reaching a net premium earned of $ 30,285 million, which is approximately 2.3% of GDP. A significant contribution to this growth were life insurance policies, which amounted to 18.9% in real terms as a result of the growth dynamics of the system. The market structure did not change significantly in 2014, and the largest volumes of premiums accrued were from vehicle insurance (28% premium), workplace accident insurance (24%) and anticipated and non-anticipated life insurance policies (16% and 14% respectively).