Although The Central Bank has been reducing the monetary policy rate to boost the issuance of bank credit, the speed with which the portfolio of loans in national currency grows continues to decrease.
Official data from the country's financial system indicate that by October 2017 the portfolio of loans in local currency grew to 14%, in the same month of 2018 the rate fell to 6% and by the tenth month of 2019 the increase was just 4%.
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 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.
In recent months, the credit portfolio of public and private banks in Costa Rica has been growing at a slower rate, partly because of high levels of indebtedness of the population.
According to figures from the Central Bank of Costa Rica, between October 2018 and March 2019 the year-on-year growth of credit has generally slowed, since the increase in the portfolio of private banks fell from 14% to 12%, in public banks the decline was from 1.37% to 0.75%, and in the case of other financial intermediaries the decline was from 8.86% to 6.97%.
The Costa Rican banking sector opposes such a measure, arguing that imposing an upper cap on interest rates on bank loans would cause informality in the credit market.
The 20.861 reform of the competition promotion and effective consumer defense, which aims to cap credit interest rates, is discussed with the country's Tax Affairs Commission.
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.
In Costa Rica, the active participation of the government issuing debt in the local market and the uncertainty over fiscal reform are some of the reasons behind the sharp slowdown in growth of credit to the private sector.
Although awards of loans to the private sector are still growing, they is doing so at a slower pace.According to official figures between January and June of this year, the inter-annual growth rate of the total credit portfolio went from 9.25% to 3.08%, which is equivalent to a drop of six percentage points.
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.
From June 2017 to May 2018, the average default rate of the Costa Rican financial system's credit portfolio increased from 1.36% to 2.14%.
According to figures from the General Superintendence of Financial Institutions (Sugef), between April and May of this year, Banco Nacional de Costa Rica (BNCR) saw an increased in its arrears of greater than 90 days and judicial collection from 2.65% to 4.18%, thus surpassing the 3% that is established as the prudent maximum limit.
Up to February 2018, the growth rate of bank loans for trade, services, consumption and housing activities decreased considerably compared to the same period last year.
According to figures from the Central Bank of Costa Rica, between February 2017 and the same month of this year, the annual growth rate of credit granted by the financial system to the private sector fell from 13% to 7%.
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%.
The risks are: uncertainty about sustainability of public finances, increasing dollarization of the loan portfolio, and inflationary pressures from excess liquidity.
In its commentary on the national economy No. 5-2016 of May 2, 2016, the Board of the Central Bank of Costa Rica said:
Competition, interbank interest rates and a stable exchange rate are the reasons for the growth of the housing loan portfolio in the first quarter of 2016.
An article on Elfinancierocr.com reports that "... Housing credit has been growing at safe rate since the start of 2016 and this market is expected to remain this way for the rest of the year ... In the first quarter, the total balance of housing loans in the financial system reached ¢4.7 billion, an increase of 10.9% compared to the same period in 2015. "
Up to December 2015 28% of the total banking portfolio was destined for consumption activities, 26% to the construction sector and 16% to service activities.
Financial Monitoring figures compiled by the Commercial Intelligence unit at CentralAmericaData com show that credit unions are the institutions who awarded the most loans of this type, with 29.8% of their total portfolio.
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