Nothing is more harmful to an economy than preventing the death of companies that have proven themselves to be inefficient or, as in the case of Bancrédito of Costa Rica, not essential or even needed.
Tuesday, October 11, 2016
EDITORIAL
Banco Crédito Agrícola de Cartago wants the State of Costa Rica to capitalize it in order to cure it of the financial deterioration that arose due to its mismanagement.
The Legislature will have the final say in deciding on the way forward for the bank, which proposes changing the course of business or it being absorbed by another state run bank.
But, why is the option being put forward of changing the strategy of a bank that has not been able to resolve long-standing structural problems so that it can compete successfully in the domestic banking system?
Why should the government, already facing a major fiscal problem, have to provide more resources to rescue a bank that has failed to prevent its continued financial deterioration?
Miguel Aguiar, Executive Director of the Development Banking System, "... said Bancrédito has been refocused on several occasions towards different businesses, without success. 'Bancrédito's structural problems include the issue of the model under which it already has been focussing, SMEs and services, without success.How can a structure that has been proved to be inefficient, with this approach, prove to be efficient?'."
"...The other alternative which is being repeated with more and more force and which is supported by the entity itself it is to turn Bancrédito into a development bank specializing in services and exclusive financing for small and medium enterprises (SMEs).'In the medium term we are also thinking about a transformation of the institution in order to make it a development bank that will serve the country's development," said its president Jean-Jacques Oguilve."
The Legislative Assembly has approved the absorption of Bancredito by Banco de Costa Rica, which must take on both the entity's assets and its obligations.
After determining that Banco Crédito Agrícola de Cartago (Bancrédito) was not financially viable, last March the National Council of Supervision of the Financial System (Conassif) recommended the absorption of the financial institution, a process that was completed yesterday when the Assembly voted in favor of the suggestion.
In Costa Rica, the financial supervisor recommended the Congress to apply the state guarantee to Bancredito and merge it with another public banking entity.
Luis Carlos Delgado, president of the National Council of Supervision of the Financial System (Conassif), "...
The state bank will stop performing financial intermediation activities and, despite proof of its inefficiency, will be converted into a promotion and development bank.
From a statement issued by the President of Costa Rica:
The Governing Council, meeting at a shareholders meeting at Banco Crédito Agrícola de Cartago (Bancrédito), decided to accelerate the transformation of that entity into a promotion and development bank, by executing a plan that would allow the entity to gradually cease to perform financial intermediation activities before December 31, 2017.
The idea that the Central Bank of Costa Rica be a fund manager for the Development Bank has been rejected by its President Rodrigo Bolaños.
An article in Nacion.com notes that the strange idea originated in the office of the second vice president of Costa Rica, Luis Liberman, where it probably passed by the Economy Minister Mayi Antillon, who most likely presented it at the Development Bank Commission of the Legislature.
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