State banks are leading this growth, although private banks still retain 61% of the total loan portfolio in the U.S. currency.
Thursday, September 20, 2012
An article in Nacion.com reports that "The growth in dollar loans from public banks is striking because it is a market that traditionally is dominated more by private financial institutions."
As an explanation for the growth in dollar loans, one point mentioned is the lack of perception exchange risk due to the behavior of the exchange rate, which for a long time has been very close to the lower limit of the exchange rate band set by the Central Bank, this coupled with the relatively low interest rates for loans in foreign currency.
"Mario Rivera, manager of the Banco de Costa Rica, said dollar credit growth is returning to the annual average experienced in the 2001-2008 period, before the international financial crisis and, if there are no significant changes in the environment, this boom will be sustainable and in line with the country's capacity. "
For his part Jean-Luc Rich, CEO of Scotiabank de Costa Rica, said that "conditions of stability and rates have been much better in foreign currency. 'For now interest rates in colones are at very high levels for people to encourage long-term purchases, where their contributions can grow by up to 30% as the base rate has done in recent months”, said the manager.
Arguing an attempt to control credit growth in dollars, the Central Bank will apply a reserve limit of 15% to banks that receive lines of foreign funding in that currency.
The banking sector has opposed the measure, asserting that it will result in an increase in the cost of credit in dollars, affecting the business sector, especially exporters and importers who normally resort to credit lines in dollars to finance their operations abroad.
The scare liquidity of colones explains the lower growth of loans in this currency, while credit growth in dollars continues to lose strength.
Added to the diminished liquidity in colones putting downward pressure on credit growth in that currency, is uncertainty at enterprise-level over recent changes in the exchange rate and lower credit demand for real estate projects, power generation and tourism, as explained by bankers to Nacion.com.