Puerto Rico Bankers Assoc.: Study shows sector’s solid financial health
A V2A Consulting study found strong asset quality and capitalization in local banks, which are also driving socioeconomic development.
The Puerto Rico Bankers Association has presented a study highlighting that the banking sector is in solid financial condition regarding asset quality and capitalization. The study, “The Socioeconomic Contribution of Puerto Rico’s Banking Sector,’ gathers data on the role, contribution and impact of local commercial banking across the island’s socioeconomic areas.
The delinquency rate for loan portfolios stands at 2%, a significant improvement from 14.2% in 2010 and 7.5% in 2015. Additionally, its capitalization rate is 17.7%, measured by the “Total Risk-Based Capital Ratio,” surpassing the U.S. banking average of 15.1%.
Local banks have utilized increased liquidity by boosting bank deposits by 32.3% between 2019 and 2023 and expanding their loan portfolios by 10% during the same period.
“For commercial banking, it is essential to have updated and concrete information on its performance as an industry, which allows us to continue outlining plans and strategies to optimize areas and continue to effectively serve Puerto Rico,” said Zoimé Álvarez, executive president of the Puerto Rico Bankers Association.
“The role of banking, its contribution and its impact on different areas of the island’s socioeconomic well-being is highly favorable and palpable. For example, local banking is the main generator of jobs in the financial sector. Banking plays an important role in the economic development of the island and is an ally for all sectors that also contribute to fostering an environment of stability and trust to promote collective progress,” she added.
The study, conducted by V2A Consulting Puerto Rico, identifies commercial banking as the financial industry’s most significant contributor to the local economy, focusing on eight main areas:
- Credit Channeler for Consumption and Investment: The local banking sector granted 147,141 loans in 2023, totaling $8.27 billion, marking a 36.5% increase compared to 2019. This increase was driven mainly by growth in commercial loans (39.1%), auto loans (60.0%) and personal consumption (49.6%).
- Multiplier Effect for Puerto Rico’s Economy: The banking sector has a significant multiplier effect on the economy, with an employment multiplier of 4.94. According to the Puerto Rico Planning Board, this multiplier ranks 10th highest among the 66 sectors analyzed. This means that for every direct banking job, an additional 3.94 indirect and induced jobs are created. In 2023, local banks also spent $593 million on products and services from local suppliers, contributing to the economy.
- Generator of Direct Jobs and High Salaries: The banking sector is the largest employer within the financial and insurance sectors, providing 11,795 jobs as of December 2023. This represents 37% of all jobs in the financial and insurance industry. The average bank salary reached $55,263 in 2023, a 34.3% increase from 2019, surpassing the salary growth in other financial sectors and the overall economy.
- Mortgage Administration for Puerto Rican Families: Banks manage nearly all Puerto Rican mortgages, whether from banks or other entities such as Fannie Mae and Freddie Mac. In 2023, they managed 331,101 mortgages.
- Community Development Support: In line with the Community Reinvestment Act (CRA), banks have financed $1.8 billion in community development projects, made $347 million in related investments and provided various community services, including technical and financial advice to low-income communities.
- Philanthropic Contributions: In 2022, Puerto Rican banks donated more than $6.1 million for education, community service, economic development, health care, culture and other social initiatives.
- Tax Payments: In 2022, banks contributed $204 million in taxes to the general fund, representing 6.3% of Puerto Rico’s corporate tax revenue, in addition to $33 million to the Municipal Revenue Collections Center (CRIM, in Spanish) and $3 million to the Financial Institutions Commissioner’s Office (OCIF, in Spanish).
- Utility and Tax Payments Channeler: Local banks facilitated approximately $10.3 million in payments for electricity, water, and other taxes and charges for various government entities. The study estimates that utility payments through banks cover between 30% and 35% of the total utility payments by Puerto Rican families.
“This study demonstrates that the role of banking is an essential one to promote Puerto Rico’s economic development. We are not only credit facilitators, but also promoters of opportunities that allow businesses and citizens to grow and prosper,” Álvarez said.
“By providing access to finance, we support innovation, foster entrepreneurship and contribute to the overall well-being of our society. Our commitment is to continue to be a fundamental pillar in the island’s socioeconomic progress, working hand in hand with all sectors,” she added.
Among the study’s recommendations to the banking sector are leveraging existing infrastructure to expand payment of public services, digitizing government processes for quicker access to public documents, avoiding overregulation, improving data collection on sector performance, and promoting banking inclusion.
