Costa Rica Banking Laws & the Financial Sector

By the Costa Rica News

This article describes Costa Rica’s banking system and financial sector. It gives an overview of the regulatory framework and regulators of the financial sector. It also discusses the state owned commercial banks as compared to the private banks operating in Costa Rica.

The Central Bank of Costa Rica makes banking policy in Costa Rica. The SUGEF (The General Financial Superintendency) regulates the industry and enforces Central Bank policies. A 2008 World Bank Survey showed that local banks have reserve requirements that are much higher and liquidity policies that are much stricter than most countries. This tends to make Costa Rican banks more conservative with their loan portfolio and internal policies.

Banking Secrecy

Costa Rican banks are party to international agreements that impose requirements that try to prevent money laundering and limit narco-dollars. This requires them to collect information about their customers in a “Know Your Client” form, which is standardized and required for every account holder. Opening an account may also require that you present financial statements or other information showing the source of the funds used to open your account.

Despite this monitoring by SUGEF and the bankers, Costa Rica’s banks must also follow the local laws regarding banking privacy. Government agencies don’t have access to account information, unless by court order as part of an ongoing investigation. Account records may be opened at the request of foreign entities, but only under strictly regulated circumstances.

The Financial Sector in Costa Rica

Costa Rica’s financial sector includes the Central Bank, 3 state-owned commercial banks, 2 state banks created by special laws (a worker’s bank and a mortgage bank), 12 private commercial banks, 3 savings and loan associations, 5 private finance companies and 32 savings and loans cooperatives. In addition, there are 5 non-bank financial enterprises, 4 money exchange houses, and a number of investment and retirement funds or trusts run by both state and private commercial banks and the state insurance company.

SUGEF( http://www.sugef.fi.cr/ ) publishes a quarterly list of entities it regulates. Prior to 1995 it functioned within the Central Bank under various forms, but was made independent by the banking law of 1995 (Law # 7558). SUGEF’s job is to supervise the financial system in Costa Rica, ensuring stability, efficiency and strength according to norms presented by the institution and with a view for the collective benefit of those participating in the system.

Regulation of Savings or Checking Accounts

SUGEF The legal reserve requirement on sight deposits is 15 percent. This reserve is held by the Costa Rican Central Bank. There is no deposit insurance on private banks, like for example the FDIC in the US, but the Costa Rican government backs the state owned banks. Banco Anglo Costarricense was closed by the Central Bank 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.

How safe are the private banks in Costa Rica?

Private commercial banks are relatively new to the majority of Costa Ricans, since only the state-owned banks could offer checking and passbook savings accounts to the public until the banking law was changed in 1995.

This law also granted private banks access to the Central Bank discount window and emergency loan facilities. Private banks must 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.

Offshore banking from Costa Rica

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 SUGEF-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, SUGEF does not have regulatory authority over the operations or individual accounts of the offshore entities.

State-owned Comercial Banks

There are 3 state owned banks: Banco Nacional de Costa Rica, Banco de Costa Rica, BanCredito (formerly Banco Credito Agricola de Cartago).

These banks offer you the advantages of being safer for your money, since the Costa Rican government backs them. They are very conservative with their practices. Although they are obligated to show profit, they don’t have pressures from shareholders to over perform. They also have better coverage; practically any town in Costa Rica has a Banco Nacional and/or a Banco de Costa Rica. They have a wide range of services, and tend to have lower fees for them. The disadvantages are mostly the long lines that occur in busy locations and on peak days (Monday morning, Friday afternoon, 1, 15, & 30 of each month, etc.) Although they may have an English speaker on the staff in the larger branches, smaller branches are not as likely to.

The Private Banks in Costa Rica

Since 2000, a number of multi-national banking companies have established operations in Costa Rica. Banco Cathay, Citibank, HSBC, and Scotiabank have branches here. They are not connected to their US operations, so the advantages of banking with the same company that you use in another country are not as clear as it might be logical to assume.

Private banks normally will have shorter lines, faster service, more English speaking staff and more agility in bringing new products and services into the market when compared to the state banks.

The greatest disadvantage is the lack of deposit insurance. You will have to look closely at the corporation and its behavior when you use a private bank. That said, the government regulations do offer a measure of protection and your funds are safe under normal circumstances with any of the larger private banks.

List of Banks in Costa Rica (affiliates of Costa Rican Banker’s Association )

Banco Nacional de Costa Rica

Banco Popular y de Desarrollo Comunal

Banco de Costa Rica

Banco HSBC (Costa Rica), S.A

Corporacion BCT, S.A

Grupo Financiero BNS de Costa Rica, S.A

Banco Citibank de Costa Rica, S.A

Grupo Financiero Improsa, S.A

Corporacion Lafise, S.A

Banco General (Costa Rica), S.A

Grupo Promérica G.B.P., S.A

Corporación Tenedora San José, S.A

Banco Centroamericano de Integración Económica

Monetary Policy in Costa Rica

The Costa Rican colon is freely convertible into foreign currency and contracts may be negotiated in any currency. For 2 decades, the Central Bank established exchange rates through auctions and a well-publicized policy of daily mini-devaluations. However in October of 2006, the Central Bank instituted a crawling band in order to slow inflation.

Currently the colon is allowed to be priced by the market within this band. In 2010 the colon was strong against the US dollar, and the The Central Bank did intervene to hold the buy rate at close to 500 colones to the dollar. In Costa Rica a 10% or 12% annual inflation rate was normal, and the “floating” colon is supposed to assist with that. Unfortunately the price of oil sky-rocketed after this policy was implemented, then the global financial crisis hit. So it is difficult to say whether the policy has had the intended effect.

Many export companies don’t like this new policy, since their production costs may rise in their home currency with a strong colon. Foreigners retiring here on fixed incomes have also felt the effects of a strong colon.

The Central Bank is authorized in emergency situations, at its discretion, to introduce and regulate the use of short-term measures to alleviate economic imbalances or liquidity crises. Such measures include imposing surcharges on imports, limiting credit growth of financial entities, increasing the minimum legal reserve requirement (up to a ceiling of 25 percent), fixing the maximum intermediation rate (spread between lending and deposit rates), centralizing currency transactions in the Central Bank, and obligating the sale of currency derived from exports to authorized entities.

The Central Bank must, however, comply with limits on these extraordinary measures, which can only be imposed for one year or less, and which cannot be applied in a discriminatory manner among financial institutions or among sectors within the portfolio of each institution. The sum of the surcharge duties and other revenue generated by the extraordinary measures are to be used by the Central Bank to amortize the monetary stabilization account.

To read the full story on the Costa Rica News click here

Colone as a currency play

We have known for some time that the Colone (Costa Rican Currency) has been performing strongly against the Euro and the Dollar.

The Colone is up over 22% against the dollar over the past 16 months and almost 30% against the Euro and our views are backed up by this interesting article by Jackie Flynn, Publisher of International Living:

3 SIMPLE STEPS
to Protect and Grow
Your Savings as the End
of the "Age of America" Draws Near...

Dear International Living Reader,

Donald Trump... Mitt Romney... Barack Obama...

Despite all the hype, it won't matter much who becomes America's next Commander in Chief...

...Because according to a top-level economic report,
the next president of the United States could be the LAST
to lead the world's biggest economy...

This tectonic shift in global economic power would have two very important consequences:

1. The standard of living in the United States will drop.
2. The buying power of the U.S. dollar will plunge even further.

According to the report – which the International Monetary Fund quietly posted on its website last month – adjusting for exchange rates, the Chinese economy will grow to $19 trillion in 2016. Meanwhile, the size of the U.S. economy will rise to just $18.8 trillion.

Take a moment to digest that...

In the 1980, China was poorer than Afghanistan...and it had half the per capita income of Niger or Chad.

And as recently as a decade ago, the U.S. economy was three times the size of the Chinese economy...

...Yet in less than five years from now China
could eclipse America in economic might...

Unfortunately, most folks simply aren't prepared for this. And as a result, they are in danger of seeing their savings shrink over the coming years. That's because:

• They have ALL of their savings in U.S. dollars or U.S. dollar-based assets such as their house and other property investments.
• They have ALL of their stock market investments in U.S.-based companies that rely for their profits on a stagnating U.S. economy.
• They have too much of their money invested in U.S. government bonds – investments that could be WIPED OUT as inflation rises.
• They have no exposure to dollar-hedging natural resources such as oil and agricultural commodities.

But investors who understand the ongoing shift of power stand to profit from the growing number of opportunities outside of America's borders.

• You can reduce your exposure to the U.S. dollar by investing in "anti dollars" – currencies that go UP when the dollar goes DOWN.
• You can invest in the world's fastest growing economies – places such as Brazil, India, Turkey and Indonesia – and favor companies poised to profit from the explosive growth of the emerging market middle class.
• You can keep a portion of your wealth in assets that rise along with rising inflation – such as precious metals and currencies that have done well in inflationary cycles.
• You can benefit from the strong trend upwards in commodities prices brought on by rising populations and per capita incomes in the emerging world.

And an all-new International Living Investor will show you in a jargon-free, easy-to-understand way how you could protect what you already have and position your portfolio for future profits.

But, ultimately, it's up to YOU which group you belong to – those who take action or those who don't.

It's Happened Before –
When the Sun Set on Britain's Empire

This won't be the first time an economic superpower has come and gone. And it won't be the last.

Imagine, just for a moment, it's 1910...and that you are part of the comfortable British middle class.

You work for a successful business. You earn a decent wage and provide for your children. You are neither at the top of the economic pyramid...nor the bottom.

Life is good...

London is the center of the world. And the British Empire stretches all the way from Australia...to India...Singapore...to Canada.

The currency in your bank account, the British pound, is the currency of global trade. And your government is the world's biggest creditor.

You're not worried about this changing. Because your army...and navy...are the most powerful on the planet. And because you have known nothing different. As far back as you can remember Britain has stood head and shoulders above all the world's other economies.

The world is the way it should be. And you see your children...and your grandchildren...enjoying the same standards of living as you do. Or better.

But it is a false sense of security.

Because by 1920 Britain is close to bankruptcy... Its empire is in tatters... The pound is devalued... And you and your children face an uncertain future...

Greece. Rome. Portugal. Spain. All at one stage or another have been dominant world powers, only to shrink in stature and be forced to share the world's economy with others.

The End of the "Age of America"...

This is a story that affects YOU.

You see, like it or not, the end of the "Age of America" is the biggest economic story of our time...

...It will change how you live and how your children live.

...It will affect every investment decision you make for the rest of your life.

...But it will also create huge opportunities to profit, as the rest of the world catches up to the standards of living we've taken for granted for so long in America.

That's why I'm offering you a 100% free subscription to our newest investment advisory service, International Living Investor.

...Plus you'll get a copy of our special investment report, "The End of the Age of America – 3 Simple Steps to Safety."

In it you'll find:

• The 3 Best "Anti Dollar" Currencies to Own Now – Perhaps the single best currency diversification strategy, as the dollar slowly loses its footing as the world's reserve currency.
• The Paycheck You're Not Collecting (But Could Be) – How to get "paid up front" for owning overseas stocks. And our picks for the 3 best income emerging market stocks to own now.
• The 4 Rules ALL Super Investors Follow – The 4 rules pros use that have been PROVEN to beat the market...and how to apply them to your own portfolio.
  

Why There's Never Been a
Better Time to Invest Overseas

It's critical that you take steps now to protect your portfolio from the changes that are coming.

But that doesn't mean you should panic. Far from it!

Because as International Living Investor editor Chris Hunter puts it, "There's never been a better time to be a global investor."

In fact, right now it's virtually impossible NOT to make money from the tectonic shift of resources and capital away from America to the emerging world.

Here are just some of the potential profit making recommendations readers of International Living Investor have had access to so far.

• How to Avoid the Dumbest Investing Mistake of 2011 – The single most important rule for investing in the global commodities markets and the two emerging powerhouse economies best poised to profit from higher energy prices.
• The Best Asset to Own as America's Power Fades – Why America is destined to lose its "top dog" economic status and the one asset to own as its power begins to fade.
• These Markets Could Triple over the Next Few Years – The 5 key factors for emerging market gains... and the 4 emerging markets that could triple as a result.
• You Could Make 1,000% on This Sector, So Why Wouldn't You – The one sector that could rise by 1,000% by 2014. And the best way to play it.
• This "Safe Haven" Currency Is about to Skyrocket – Why a tiny landlocked country's currency could still be the best place for your cash when world markets come under stress and how to buy into it through an easy ETF.

Don't worry. You won't need to open up an offshore account to profit from these global growth plays. And you won't have to send a single dollar overseas.

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International Living Investor won't clog up your inbox either. All the investment insights and recommendations will be packed into four easy-to-read issue each week.

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• Profit insights from Chris and his team of guest investment experts. These will arrive in your inbox every Monday, Wednesday, Friday and Saturday. Each one will take no more than 4 minutes to read. And each one will be easy to understand and jargon free.
• Immediate access to our latest special investment report – "The End of the Age of America – 3 Simple Steps to Safety." And the three actionable recommendations on how to protect your savings as America's position of economic "top dog" changes.
• Our iron-clan guarantee that we will NEVER rent or sell your email address.

International Living Investor is more than just investment recommendations. It's a wide-lens view of the biggest trends shaping the world today...and the perfect complement to your daily IL Postcards.

Investors' faith in Wall Street is at an all-time low...and for good reason.

There's a growing disillusionment with America's big corporations, banks and political parties. And the 2008 stock market crash was a big blow to all of us.

Yet there are literally thousands of ways to profit from the power shift away from traditional economic strongholds of Europe and the United States to the world's growth economies.

And few investors are even looking at these opportunities. Instead, they continue to invest in the same bunch of U.S. companies...with the same negative results.

It's hardly surprising most investors are so glum! If you buy the same stocks everyone else is buying, you'll have the same results as everyone else. That's just the way the market works.

But by looking outside the box...and outside of America...you immediately increase your chances of investment success.

It's an exciting time to be an international investor. I hope you'll join us as we embark on what's set to be an extraordinary journey.

Sincerely,

Jackie Flynn
Publisher, International Living

P.S. Too many Americans miss out on some of the world's most profitable investments because they believe investing overseas is "too foreign" or "too risky." But as an IL Postcards reader, you already have a global perspective. And you know that opportunities don't end just because America's borders do. If I'm right, you already know more about these exciting opportunities than most...which is why I believe International Living Investor is an essential part of what International Living as to offer.

P.P.S. Remember, International Living Investor is completely free to receive. There are NO hidden agendas and NO hidden costs. If you're not completely happy with the actionable recommendations Chris and his team provides, you can simply unsubscribe with one click of you mouse. But judging from the number of IL Postcards readers already enjoying Chris's insights –it will make the perfect complement to your daily Postcards.

To read more visit International Living