UPDATE 1-Moody's revises outlook on Bolivia's banking system to negative

LA PAZ Fri Aug 8, 2014 10:52am EDT

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LA PAZ Aug 8 (Reuters) - Ratings agency Moody's revised its outlook for Bolivia's banking system to "negative" from "stable" on Friday, citing growing risks to the Andean country's commercial banks from a raft of new government policies.

Moody's projected the Bolivian economy would expand 5 percent this year, below the government's latest forecast, driven by high commodity prices and supported by prudent policymaking.

But it said new government regulations that set caps on lending, that direct lending toward specific industries, and that constrain bank income from fees have heightened the risks to bank profits.

"(These) will reduce bank earnings, and may lead to a decline in asset quality as investors seek profitability in higher-risk areas," said Fernando Albano, a Moody's analyst.

The country of roughly 11 million people is one of Latin America's poorest nations. Its leftist president, Evo Morales, who became Bolivia's first indigenous leader in 2006, is seeking a third term in power this October to expand his social reforms.

Bolivia has enjoyed relative prosperity and calm since Morales came to power. Gross domestic product per capita doubled between 2005 and 2011. Under Morales, a former coca farmer, the government has nationalized key industries, including the hydrocarbon and utility sectors.

Moody's said that Bolivia's broadly favorable economic climate has boosted purchasing power and expanded credit demand, presenting the country's financial system with a growth opportunity. (Writing by Richard Lough; Editing by Peter Galloway)

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