A greater supply of dollars, high local interest rates and a decrease in imports of durable goods explain the decreasing trend of the exchange rate in Costa Rica, which on June 18 reached the lowest level of the year.
In 2018, the dollar price against the Colon was on an upward trend, however, between February 6 and mid-June of this year, there has been a fall of up to 28 colones per dollar. [GRAFICA caption="Click to interact with graph"]
As of September of this year, the bank loan portfolio granted to the private sector registered a 5% YoY growth, well below the 13% registered in the same month in 2016.
Changes in the rules that banks follow when granting loans in dollars, an increase in interest rates and a brief but sharp devaluation suffered by the exchange rate in May are some of the reasons behind the reduction in the speed with which the credit portfolio in dollars is growing.
Research backed by the export sector concludes that in order to reach the breakeven point, the colon needs to devalue by 20% against the dollar within three years.
Analysis by the economist and former bank manager Gerardo Corrales suggests that the exchange rate needs to depreciate by 20% in order to reach its "real" value and balance.To avoid the effect of a sudden devaluation it has been proposed that the increase be done gradually by the Central Bank.
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.
Starting from May companies will be able to use intellectual property rights, crops or inventories as collateral for bank loans.
The law which goes into effect on May 20 allows accounts receivable, movable property (except vehicles), stocks, crops, inventories of merchandise and commercial patents to be used as collateral for loans.
Danilo Montero, executive director of the Costa Rican Association of Development Organizations (Acorde), told Nacion.com that "... The law will be very useful for the type of customers they have, most of which are micro-businesses that offer exactly this type of backing. Now this gives us the ability to record, electronically, colatorol with the Registry and in case of default of the debtor, it will be easier to implement the collateral put up. "
The bank BAC San José de Costa Rica has issued $210 million at a 7-year term securitizing the flow of deposits received from abroad in corporate accounts in the form of remittances or payments for exports or imports.
Although the bank did not specify the interest rate for the issue, Gerardo Corrales, general manager of the company, told Elfinancierocr.com that "... it is a fixed return."
Businesses will receive 2% less from the banks for payments made by customers using credit and debit cards, by way of advance payment of income tax.
A decision by the Directorate General of Taxation, published in La Gaceta says that banks must start making a deduction of 2% of the amount which corresponds to the business on card payments received from October 1.
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.
The discretionality of interventions made by the central bank in the foreign exchange market could open the gate for unjust enrichment of those who have inside information.
EDITORIAL
In the best of democratic worlds, the intervention of public employees in the economy generates income transfers between the sectors within the economy, according to state policies that are largely accepted by the population.
The bank, owned by Colombia's Grupo Aval has bought Grupo Financiero, which includes Banco Reformador in Guatemala and Transcom Bank Limited of Barbados.
The only thing now pending is approval of this transaction by the financial market's supervisory authorities in the country. According to the general manager of BAC San José in Costa Rica, Gerardo Corrales, the intention of this purchase is to strengthen corporate banking in the Guatemalan market..
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).
At the Banco de Costa Rica the volume of assets received in lie of payment increased by 70% compared to 2011.
A survey by Elfinancierocr.com between 6 financial institutions, including the four public banks in the country, revealed that in February of this year, there were 1259 properties in their possession, in contrast to the 884 properties that were reported in the same period 2012, ie there was a 42% increase.
While preparing a definitive ruling, a Costa Rica tribunal court ordered a mortgage lender to reduce the monthly fee paid by a debtor to its initial amount.
In Costa Rica, interest rate growth has led to significant increases in the fees paid by borrowers to banks and finance companies.
Now, faced with a class action, a Court of Appeals Dispute Tribunal has granted an injunction to one of the debtors, ordering that " the monthly payment for a home loan, from 1. ° December 2012, be kept at the same amount as when the loan was acquired in 2007. "
State banks are leading this growth, although private banks still retain 61% of the total loan portfolio in the U.S. currency.
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.