In Costa Rica the index of activity in the construction sector has had 4 consecutive months of downturn, and now faces the threat of new financial rules which will make access to credit more costly.
The construction sector's main concern is the impact that interest rates will have on the new standards which financial institutions will need to comply with.They are predicting an increase in credit costs primarily because of the new rules already in force and which determine that for institutions that lend money"... The minimum percentage level of the countercyclical estimate required is 0.33%. Each entity must register on a monthly basis expenditure equivalent to a minimum of 7% of its profits, until it reaches an optimum level defined by the Sugef. "
If the measures which the Central Bank plans to implement come to fruition, banks will have to seek authorization from the entity in order to borrow abroad in dollars.
This measure would be in addition to the latest implemented by the Central Bank, raising reserve requirements to 15% on new business loans from abroad.In June this year the increase in the loan portfolio in dollars compared to the same month of 2015 was 14%.
Issuers have objected in particular to the cap on interest that can be charged, citing an increased credit risk and a reduction in the number of cardholders.
An article on Lahora.gt reports that "... Roberto Fuentes, of the Association of Credit Card Issuers of Guatemala (AEMPG), said the Credit Card Act does not have the technical basis necessary to actually have a positive effect on users. Fuentes explained, if a maximum rate of 26 percent annual interest is imposed, the risk of loss to businesses increases, therefore those who earn less than 12,000 quetzales would no longer qualify for a credit card . "
Financial institutions in Costa Rica will have a maximum of 48 months to implement the new measures which restrict lending.
The information was confirmed by the National System for Financial Supervision (Conassif), which approved "11 new regulations, with a phased implementation period of up to 48 months, when the original version stipulated 36. Most of the grace periods start from 1 January 2014 ", reported Nacion.com.
The Costa Rican Central Bank has decided to remove the limits on credit growth both in dollars and in colones, due to the weak economic growth facing the country.
The announcement came during the presentation of a review of the Macroeconomic Program 2013-14, where it was revealed that growth projections for that period are 4%, while inflation will be 5%. According to the President of BCCR, Rodrigo Bolaños, the Costa Rican economy is growing at a slower pace due to a reduction in exports, coffee rust, the limitations on sowing more pineapples and even the limit on credit growth.
Despite the restriction by the central banking system which has caused a general credit contraction, consumer loans have grown by 22%.
According to data from the Superintendent of Financial Institutions (Sugef), these activities are maintaining an upward trend, despite a slowdown in the national economy. "The growth in both sectors is important because they are together as a whole, 40% of the total credit granted by banks", reported Nacion.com.
President Chinchilla has asked the central bank to reconsider the current policy of quantitative limits on credit growth.
Nación.com reported that the president's main argument is that "the outlook for the economy in the country is different from that faced in January."
The president said that "the level of inflation is within the central bank's target, interest rates have been reduced by more than four percentage points, the growth rate of the national and international economy has declined and capital flows which were affecting us have declined substantially, for those reasons I believe that there is scope to review and revise the policy adopted at that time. "
The sector's growth has been hampered by the ceilings imposed by the Central Bank of Costa Rica on the growth of the credit portfolio.
The BCCR last February set a limit on growth of 12% for the private financial sector, in order to remove excess colones that had to be used to maintain the status of the dollar.
Jimmy Hernandez, general manager of Cathay Bank, said their original budget was growth of $45 million however, because of the limitations of BCCR they had growth of $15 million. He added that this restriction means they will not open branches this year nor hire staff, but expect to resume growth soon.
Credit histories of businesses and individuals will be more thoroughly reviewed, as well as their actual repayment capacity.
"We want entities to analyze peoples's debts with everyone, because they may have a loan here and there, and in the end owe millions," said Javier Cascante, chief of the General Superintendence of Financial Entities (Sugef).
The Sugef in Costa Rica has demanded tighter controls on banks when lending in dollars.
As part of the measures proposed by the Superintendent of Financial Institutions (Sugef), financial institutions must conduct a capacity analysis on the borrower, as well as requiring collateral and credit history, a test now only done when the loan is for more than $130,000.
The instrument which had been viewed as a way to circumvent the current credit squeeze, is now officially considered as another form of credit facility.
Bankers' acceptances had been relaunched by the National Stock Exchange (BNV) as a way to provide short-term funds to companies who require them, without having to apply for a formal loan, believing that banks would not have to count them as part of their portfolio credit growth which is currently limited by resolution of the Central Bank of Costa Rica (BCCR).
The Costa Rican Chamber of the Construction Industry has said that mortgage lending is an investment, not an expense, and therefore access should not be limited.
A statement from the Costa Rican Chamber of the Construction Industry (CCC) reads:
CCC MEETS WITH MINISTER AFTER MEASURES ANNOUNCED BY THE CENTRAL BANK
The Board of the Costa Rican Chamber of the Construction Industry (CCC by its initials in Spanish) met yesterday with the Minister of Finance, Edgar Ayales to make him aware of the sector’s concerns about the measures announced by the Central Bank of Costa Rica (BCCR) to place a limit on credit portfolios in colones and dollars.