BANKING SYSTEM OF COSTA RICA

The banking and financial sector in Costa Rica is stable, liquid and well regulated, following extensive changes in recent years. Costa Rica’s banking system consists of the central bank; three state-owned banks, which account for nearly half of total banking assets; two people’s banks; 17 commercial banks; four mutual house-building companies; 12 private finance companies; and 25 savings and loans cooperatives. According to the Economist Intelligence Unit, “The state continues to play a dominant role in the banking sector and bank credit policy often reflects the political aims of the government, resulting in subsidised loans to unprofitable sectors, thereby diverting scarce resources from more productive activities.” The EIU also reports that foreign investors account for nearly half of the private banks.

CONASIF, the Consejo Nacional de Supervisión del Sistema Financiero- National Supervisory Agency for Financial Entities, continues to play a key role as the banking sector consolidates. As the industry regulator, it sets and enforces international standards in the banking sector.
The Central Bank of Costa Rica determines and directs policies affecting the banking sector. The CONASIF enforces compliance with Central Bank policies on establishment, registration, capital requirements, and operations of financial institutions and groups. The banking reform legislation of 1995 reduced the minimum legal reserve requirement on sight deposits from 43 percent then to 15 percent in 1998. Total assets may not exceed 11 times a bank's equity, and the legal lending limit is 20 percent of total capital per customer.
There is no deposit insurance on private banks, but the Costa Rican government backs the state owned banks. Banco Anglo Costarricense was closed by the Central Bank's examiners office in 1995 after incurring US$ 200 million in losses due to bad loans and dubious investments in Venezuelan bonds that subsequently disappeared. Criminal proceedings were successful against members of the bank's board and management, many of whom are serving prison sentences. Not one depositor lost money in this scandal.

Private banks have been undergoing a consolidation, with the total number of banks declining. Further consolidation is expected, as the size of the Costa Rican market is inadequate to sustain the number of banks that remain. A regional trend of consolidation is also evident, with recent purchases of Banco Banex by Panama's Banco del Istmo and Banco BFA by El Salvador's Banco Cuscatlαn.
The 1995 reforms that enabled private banks to offer demand deposits also granted private banks access to the Central Bank discount window and emergency loan facilities. However, the reforms also required private banks to fulfill one of two requirements: (1) opening four branches in rural areas and depositing the equivalent of ten percent of demand and short-term time deposits (30 days or less) in a state-owned bank; or (2) depositing the equivalent of 17 percent of demand and short-term time deposits (30 days or less) in a state-owned bank.

Many Costa Rican banks have subsidiary or affiliated banks registered offshore. These offshore entities are not permitted to capture deposits or lend money within Costa Rica, though they cater to Costa Rican clients. Recent reforms stipulate that any SUGEVAL-regulated holding company or financial group owning 25 percent or more of the equity of an offshore entity must include the offshore assets on its balance sheet. However, SUGEVAL does not have regulatory authority over the operations or individual accounts of the offshore entities. The General Securities Supervisory Agency (SUGEVAL) was created in 1998 to supervise and regulate the Costa Rican stock and bond markets.

Financial Institutions Operating
Some of the banks operating in Costa Rica:

Banco de Costa Rica
BanCrecen
Banco de San Jose
Banco BFA
Banco Finadesa
Banco Interfin
Banco Continental
Banex
Banco Nacional de Costa Rica
Scotiabank de Costa Rica
Banco del Comercio
Banco Popular
Dresdner Bank.