Although the downward adjustments made months ago in the bank reserve and monetary policy rate do not yet appear to have had an effect on the loan portfolio in Costa Rica, banks expect credit to be reactivated soon.
In order to boost credit issuance, the Central Bank reduced from 15% to 12% the minimum legal reserve rate that institutions in the banking system must maintain as a reserve.
The new rate, which will come into effect on June 16 of this year, has not been reduced since 2002, and the authorities expect that this decrease will generate a greater availability of loanable resources in colones, as well as a reduction, for financial institutions, of the cost of raising funds in national currency.
In order to try to stop the deceleration in the issue of loans in dollars, authorities in Costa Rica have decided to soften the rules required of banks who grant loans in this currency.
The National Council of Supervision of the Financial System (Conassif) has decided to temporarily reverse the stricter measures that banks must comply with when granting loans in foreign currency to those who generate income in Colones, with the aim of counteracting the deceleration that has been seen in the issue of bank loans.
Starting from 1. July and during that month, the reserve amount will be 5%, in August it will rise to 10% and in September it will achieve its permanent value of 15%.
The Board of the Central Bank of Costa Rica in Article 9 of the minutes of the session 5686-2015, on May 6, 2015, ... agreed to:
Modify Title III, Chapter I, section B, paragraph 4 of the Regulations Monetary Policy, henceforth to be read as follows:
Representatives of business associations have proposed ten measures to prevent the entry of speculative capital into the country and to provide flexibility to the exchange rate without local currency appreciating.
Elfinancierocr.com reports that "Business representatives this afternoon delivered a plan with 10 steps to curb the heavy influx of foreign capital", among which was "a tax on speculative capital inflows, in addition to promoting a specific tax on remittances sent abroad, of 5% for national banks and 5% for ‘suitcase’ banks".
Having been taken to the Constitutional Court, an appeal against a measure submitted by the Chamber of Banks and Financial Institutions, has been suspended until further ruling.
The appeal was filed against the agreement by the Board of the Central Bank of Costa Rica, which states that financial intermediaries must have reserves not only for deposits and income, as mandated by the Organic Law of the BCCR, but also operations originating from short-term external loans, revolving lines of credit contracted abroad and transactions originating in foreign loans that contain provisions for enforcement of payment in a period of less than 360 days, or that do not preclude or exclude payment in that period.
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
Analysis of the main weaknesses of the proposals from the main presidential candidates in the 2010 elections.
Playing the “devil’s advocate,” analyst Edgar Delgado set out to review the proposals of the Costa Rican presidential candidates, trying to find potential weaknesses in each proposal.
Proposals from Rafael Angel Calderón (PUSC), Laura Chinchilla (PLN), Ottón Solís (PAC), and Otto Guevara (Movimiento Libertario) were reviewed.
According to Banks, the change in the calculation of the reserve will increase the costs of the financial intermediaries and will reduce the supply of credit.
The Central Bank of Costa Rica modified the methodology used to calculate reserves, implicating that, beginning next July 1st, Banks must have deposited in the Central Bank, at the end of each day, deposits of no less than 97.5% of the minimum legal reserves for the previous month.
From abundance to scarcity: Challenges faced by Central American banks in an
environment of tight liquidity.
After having been hit hard by the US mortgage crisis in 2008, large US and international banks have considerably weakened, in some cases escaping from bankruptcy only thanks to strong government intervention. Such an event has eroded the public’s confidence in the financial system worldwide.
From abundance to scarcity: Challenges banks face in an environment of little liquidity.
After losses caused by the real estate crisis in the United States in 2008, big American banks and those from other developed countries have been greatly weakened and, in some cases, have only escaped bankruptcy thanks to help from their governments. This situation has contributed to the erosion of confidence in the financial markets at the global level.
Raising the minimum legal reserve requirements for commercial banks and financiers could translate into an increase in interest rates for customers.
The increase in reserve requirements is being considered in an effort to capitalize the Central Bank and give it more power to control inflation. The Executive Branch has sent a bill that would have this effect to the Legislative Assembly.
The new project that is designed to strengthen the role of the Central Bank in controlling inflation has caused a "wait and see" attitude among the nation's banks.
Although there are only seven measures contemplated in the proposed law to help the Central Bank reduce inflation, they represent important changes in the banking marketplace.
One of the most important is the increase in the legal minimum reserves that must be held, to 25% from 15%.