The high levels of unemployment and the poor growth of credit are factors that have worsened in the context of the economic crisis generated by the outbreak of covid-19, which has led to the deterioration of the credit record of customers.
In Costa Rica, a law initiative under discussion seeks to set caps on interest rates on loans, a measure that could lead to a reduction in the offer of credit for debtors classified as higher risk.
As part of a bill being discussed in the Legislative Assembly, the heads of the Central Bank of Costa Rica (BCCR) and the General Superintendence of Financial Entities (Sugef) were asked to give their views on the content of the proposal.
In the last two years, 100,000 loans that were up to date became arrears, and bankers attribute this mainly to the increase in unemployment and the decline in economic activity.
The slowdown that the Costa Rican economy has suffered in the last two years is taking its toll not only on businesses and families, but also on the banking sector.
Figures from the General Superintendence of Banks and Financial Entities (Sugef) detail that "...
Late loans granted by public banks to small companies amounted to 5.5% in May, 3.8% in the case of medium-size companies and 3.3% in the case of large companies, a situation attributed to the economic slowdown.
The percentage of credits reported by the General Superintendence of Financial Entities (Sugef), refers to loans that went into default for more than 90 days and judicial collection, granted by public entities such as the National Bank, Banco de Costa Rica and Banco Popular.
With the aim of making the classification of debtors more flexible and reducing the risk of non-payment, in a context where delinquent loans keep on rising, Costa Rica authorized the modification of two regulations that apply to entities in the financial system.
The General Superintendence of Financial Entities (Sugef) and the National Council of Supervision of the Financial System (Conassif), informed that changes were made to the "Regulation for the qualification of debtors" and the "Regulation on management and evaluation of credit risk for the development banking system", which ultimately aim to give access to new credits to about 63 thousand people.
In the last two years, non-performing loans to the agricultural sector increased from 2.4% to 5.9% between April 2017 and the same month in 2019.
Figures from the General Superintendence of Financial Entities (Sugef) indicate that the increase reported in the arrears of agricultural loans includes operations with delays of more than 90 days, as well as operations that are in judicial collection.
Between May and September 2018, an increase was reported in the proportion of loans with payment arrears greater than 90 days, but between October and December the trend was downwards.
Data from the General Superintendence of Financial Entities (Sugef) indicate that between September and December 2018, the proportion of loans with payment arrears greater than 90 days, or in judicial collection, decreased from 2.58% to 2.14%.
Because of the slowdown in the issuance of loans, in 2018 the profits of banks in Costa Rica grew just 3% over what was recorded in 2017.
Figures from the Central Bank of Costa Rica show the deceleration reported in loans granted during the first nine months of last year, detailing that up to December 2017 the credit portfolio to the private sector registered an 8% year-on-year increase, while the indicator concerned up to September 2018 dropped to 5%.
From July 2017 to September 2018, the percentage of loans in dollars with payment arrears over 90 days or in legal collection increased from 1.57% to 2.95%.
The default on dollar loans is still under 3%, which is still considered normal. However, according to the trend reported in recent months in the records of the General Superintendence of Financial Entities (Sugef), the indicator is likely to exceed the 3% barrier.
The deterioration of the economy and rising unemployment are the main reasons behind the difficulties faced by companies and individuals in Costa Rica in paying back their bank loans.
According to figures from the General Superintendence of Financial Entities, between January 2017 and July 2018, the percentage of loans in defaults for more than 90 days or in judicial collection, went from 1.65% to 2.51%, showing an upward trend in recent months.
Figures up to October 2017 show a 3% YoY growth, well below the 12% increase registered in the same month in 2016.
The slowdown seen in economic activity during the last eleven months is one of the reasons that explain the lower demand for bank loans by companies in the country.
Elfinancierocr.com reports that "...In addition, the rise in interest rates in colones and dollars, the volatility presented by the dollar in the middle of last year, as well as the growing fiscal deficit, prevented companies from finding any stimulus to support the idea that it was a good time to borrow."
In 2010 average household debt per household was around $3,000, and last year, just six years later, the figure exceeded $6,500.
Data compiled by Nacion.com shows that the average debt of each Costa Rican household indicated in the analysis only takes into account financing with supervised entities, meaning that it could be be omitting loans taken out for consumption through other sources of unregulated financing, such as pay day lenders and pawn shops, among others.
Regulations are being prepared to supervise the activities of solidarity associations, whose volume of credits is equivalent to that managed by the 7 smallest private banks in the country.
At the end of 2016, the volume of loans granted by solidarity associations totaled $6.425 million, according to data provided to Nacion.com by the Solidarity Movement.The plan of the General Superintendency of Financial Entities (Sugef) is to create a separate regulationfor these entities, which since 1995 have been operating without any supervision by the authorities.
By requiring banks to have additional capital requirements the Sugef aims to discourage consumer loans, mortgages and vehicles loans with long repayment terms.
Arguing that terms of over 30 years for housing loans and more than 5 in consumer loans encourages overindebtedness of Costa Ricans, the Superintendent of Financial Institutions (SUGEF) has presented a proposal toreform the ruleson capital adequacy of financial entities, in order to require entities that carry out these credit operations to have additional capital.
38% of total bank lending corresponds to housing construction, while 35% is used for buying new homes.
Data from the housing loan portfolio in the domestic financial system shows that the proportion of loans requested by Costa Ricans to build their homes is higher than loans used to buy existing homes.
Elfinancierocr.com explains that"...The Costa Rican financial system has a balance of credits which were used for housing amounting to ¢4.6 billion.This amount represents 25% of all outstanding loans in the country (¢ 18 billion). For housing construction, the balance is ¢1.75 billion and, for the purchase of new homes, it is ¢1.62 billion.Both lines represent 73% of the total."