From February 2016 the banking union will publish an interbank rate that will serve as reference for the calculation of interest rates for loans in colones.
The Chamber of Banking and Financial Institutions plans to hire an independent firm to perform the calculation of the indicator, which will begin to be published in February 2016. The union argues that although there is a passive base rate, which is used as a reference for credit operations and investments, in other markets it is independent third parties which calculate such indicators.
The lending rates of Banco Nacional recorded an average reduction of 3.77% since January this year to date.
The reductions made by the Central Bank in monetary policy rate so far this year are beginning to have an effect on the structure of interest rates in banks. Banco Nacional, the largest in the market, recorded a drop of almost 4 percentage points in the interest rates for loans.
The Superintendency of Insurance has asked for explanations from the National Insurance Institute over recent announcements made on grants and loans for road works and other government programs.
The superintendent argues that while the National Insurance Institute (INS) has the power to grant loans, the authorization to do so "is contingent upon the best practices of the insurance business."Nacion.com adds that "...The Law Regulating the Insurance Market dictates that 25% of the profits of the Institute are transferred each year to the State; the remaining 75% is to be used to capitalize the insurance business. "
A regulation currently under public consultation would increase the reserves that banks must have before lending dollars to those whose income is generated in colones.
This would be one of the new requirements covered by the regulation that the Superintendent of Financial Institutions (SUGEF) put to consultation earlier this month.
Lower demand for credit from the private sector is the main reason for the increase in liquidity in colones in the local financial system.
Although increased liquidity should be accompanied by a reduction in interest rates, this is not the case in Costa Rica, as expectations of a possible rate hike in the United States and internationally are being maintained and forcing them to be kept down.
The Financial Superintendency plans to increase reserve requirements for banks that lend in dollars to companies that do not generate revenue in that currency.
As a measure to prevent the growth of dollar loans to individuals and companies that do not generate income in this currency, the Superintendent of Financial Institutions (SUGEF) said it plans to raise reserve requirements for financial institutions and banks in order to address payments in arrears by debtors. Currently the requirement is 0.5% of the balance due.
The drop from 20% to 6% in the annual growth rate of bank lending to companies as of June, illustrates the direct link between confidence in the future and demand for business loans.
Cathay Bank estimates that slower growth in bank loans for business activities is due to the uncertainty regarding the near future of the economy. The possibility of a tax reform, coupled with the lack of action by the government to reduce spending and increase public investment are factors that are raising questions and forcing companies to delay projects.
The banks Banco de Costa Rica, Banco Nacional and the Banco Industrial de Guatemala "will have to reduce the growth rate of their loans, since their core capital levels remain modest."
From Moody's press release:
Mexico, July 21, 2015 -- Central America's leading banks will need to slow the pace of their loan growth as their core capital levels remain modest, said Moody's Investors Service in a new report.
The number of companies providing quick loans at high interest rates to people who are not eligible for credit in the financial system has increased.
The market segment that caters to people who are not eligible for credit in the formal financial system has grown in recent years. One example is Instacredit, whose loan portfolio balance has increased at a rate of 25% a year since 2010, according to Nacion.com.
The slow speed at which tasks are executed by civil servants means that the Development Banking System is still not working despite the urgent need of the productive sector.
The private sector is complaining that resources in the Development Banking System are still locked up because a member of the governing council has not yet been appointed .
The Minister of Agriculture, Luis Felipe Arauz, responded to the complaint noting that analysis has been completed of the three candidates for the post, and tomorrow approval "could" be given by the Governing Council for the appointment of the representative from the College of Economic Sciences.
Since mid-2014 credit unions and mutuals have had to increase their reserves due to an increase in expected losses by banks.
The need to increase reserves due to increased losses expected to be suffered by institutions for non-payment of their debts is mainly due to a greater number of "bad debtors" according to an article on Elfinancierocr.com.
Of all the financial institutions analyzed, savings cooperatives and credit unions whose primary loan portfolio is mortgages, are those with the highest percentages of reserves. The Superintendent of Financial Institutions states that "the level of normality of estimates must be equal or less than 1.7% of all loans."
Six financial institutions have been authorized to provide loans under the conditions imposed by the Development Bank, with interest rates of 3% in dollars and in line with the passive base rate in colones.
Welmer Ramos, chairman of the Governing Board of the Development Banking System commented that "... 'These programs involve interest rates that are half the rates that currently exist for the same activities.'"
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:
A law will bring benefits for a few, paid by all, discriminating against other companies in the sector, a situation which is inequitable and distorts the rules of the market and free competition.
EDITORIAL
In Costa Rica a bill to help tourism businesses affected by the 2008 crisis would forgive the interest on their debts with state banks, which, if approved, would be totally unfair for companies who have managed their situation better, getting over the crisis and are now up to date with their loan payments.
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.