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Fitch: Venezuela's banks continue to face environmental risks

Venezuela's banking system continues to face risks stemming from the country's operating and regulatory environments, Fitch Ratings said in a dashboard report.

The country's banks have seen asset growth of over 1,000% for 2017, though this has been due to hyperinflation in the country, which greatly exceeds internal capital generation. "As a result, the banking system's capitalization metrics continued to decline despite multiple actions of regulatory forbearance."

Fitch adds it expects additional forbearance to take place in the near term, but is still concerned over whether Fitch-rated Venezuelan banks will be able to keep capital levels above regulatory minimums.

Banks in the country have built up liquidity buffers to meet environmental challenges, with cash and cash equivalents growing to 71.4% of deposits and short-term funding as of year-end 2017. They have also decreased loan tenors to between 30 and 180 days.

However, loan quality and profitability metrics have become increasingly distorted and unreliable, while impaired loan ratios continue to decline, diluted as they are by loan growth above 500% during 2017, Fitch said.

Banks' viability and long-term foreign currency issuer default ratings could be relieved by a resolution of Venezuela's status of Restricted Default, whereas they could be pressured by a persistent nominal decline in deposits.