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.
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.
In Costa Rica the index of activity in the construction sector has had 4 consecutive months of downturn, and now faces the threat of new financial rules which will make access to credit more costly.
The construction sector's main concern is the impact that interest rates will have on the new standards which financial institutions will need to comply with.They are predicting an increase in credit costs primarily because of the new rules already in force and which determine that for institutions that lend money"... The minimum percentage level of the countercyclical estimate required is 0.33%. Each entity must register on a monthly basis expenditure equivalent to a minimum of 7% of its profits, until it reaches an optimum level defined by the Sugef. "
If the measures which the Central Bank plans to implement come to fruition, banks will have to seek authorization from the entity in order to borrow abroad in dollars.
This measure would be in addition to the latest implemented by the Central Bank, raising reserve requirements to 15% on new business loans from abroad.In June this year the increase in the loan portfolio in dollars compared to the same month of 2015 was 14%.
Presenting a tax declaration will be a requirement for some companies seeking bank loans.
The move is part of the Regulation on the Qualification of the Debtors, which has been in effect since June 17.The companies that will be asked for this requirement are those who "... have a good credit record, low currency risk in the event of abrupt changes in the dollar and have audited financial statements."
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.
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 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 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 Ministry of Finance is preparing a bill that would require filing an income tax statement before applying for a loan from a bank.
The purpose of this initiative against tax evasion is for the Ministry of Finance to "... have the same status as the Costa Rican Social Security Fund (CCSS), ie that people must be up to date with payments to the institution in order to make arrangements in the public sector. "
Tighter analysis of customers and better control of risk in lending are part of the changes that are being prepared by the financial regulator.
In 2013 the General Superintendence of Financial Entities (Sugef) began a process of regulatory changes for banks to continue during 2014. Tighter analysis of customers and better control of risk when granting loans are some of the changes being contemplated.
An announcement has been made for a funding line for micro, small and medium enterprises without collaterals such as mortgages, wage guarantees or financial analysis.
Using a methodology developed by Harvard University, which measures the skills, knowledge and abilities of the applicants, Costa Rica's Bancrédito bank will provide loans to small and medium enterprises.
Financial institutions in Costa Rica will have a maximum of 48 months to implement the new measures which restrict lending.
The information was confirmed by the National System for Financial Supervision (Conassif), which approved "11 new regulations, with a phased implementation period of up to 48 months, when the original version stipulated 36. Most of the grace periods start from 1 January 2014 ", reported Nacion.com.
The Costa Rican Central Bank has decided to remove the limits on credit growth both in dollars and in colones, due to the weak economic growth facing the country.
The announcement came during the presentation of a review of the Macroeconomic Program 2013-14, where it was revealed that growth projections for that period are 4%, while inflation will be 5%.
President Chinchilla has asked the central bank to reconsider the current policy of quantitative limits on credit growth.
Nación.com reported that the president's main argument is that "the outlook for the economy in the country is different from that faced in January."
The president said that "the level of inflation is within the central bank's target, interest rates have been reduced by more than four percentage points, the growth rate of the national and international economy has declined and capital flows which were affecting us have declined substantially, for those reasons I believe that there is scope to review and revise the policy adopted at that time. "