Over the last several days, officials from the Central Bank of Costa Rica (BCCR) have been listening to representatives of local financial institutions and their concerns about stalled credit and minimum reserve requirements. Nevertheless, the Bank is standing pat in its approach to dealing with the current economic crisis.
Last week at Casa Presidencial, BCCR President Francisco de Paula met with representatives from state banks, the Union of Private-Sector Chambers and Associations (UCCAEP), as well as President Oscar Arias to discuss measures to reactivate credit in the market to improve economic productivity.
The discussion was productive, de Paula said, but no concrete measures were generated during the three-hour-long meeting.
De Paula also explained that current market conditions make it difficult to lower interest rates, as the private sector is requesting.
In order to drop rates, de Paula said, inflation needs to be reduced, although he added that he believes the inflation rate will gradually drop throughout the year.
A drop in interest rates would improve access to loans, said Manuel Rodríguez, president of UCCAEP, while Banco de Costa Rica President Carlos Delgado, who was at the meeting on behalf of the public banks, called on Costa Ricans to visit their banks and request loans in order to reactivate credit.
Another issue bankers hoped to discuss was the possibility of lowering the legal minimum reserve rate, which now sits at 15 percent. However, de Paula said this issue wasn’t going to be on the table, as the BCCR had determined that the banks had enough resources on hand at this time to give credit.
On March 11, BCCR decided to postpone, for a 60-day period, the implementation of new methodology to determine the legal minimum reserve required in state banks.
In a written statement, Jorge Monge, BCCR’s general secretary, said the bank had decided to postpone the implementation of the new methodology due to concerns raised by financial institutions.
The current methodology requires banks to keep 90 percent of their daily deposits intact, whereas the new formula would oblige banks to keep 100 percent of their deposits on hand.
Eric Vargas, strategy director at Aldesa, a financial advising firm, said on Monday his group supports the new methodology, not yet in force, as an appropriate measure during the current economic slowdown.
“We (respect) the position the Central Bank has maintained of not conceding before strong pressure from different actors to increase liquidity in the economy,” Vargas said. “We think the more liquidity increases, more pressure will be put on the exchange rate.”
Anabella Ortega, executive director of the Chamber of Costa Rican Banks and Financial Institutions, said the proposed methodology needs to be discussed further.
“The 100 percent legal minimum reserve quantity needs to be studied along with the current methodology,” Ortega said. “The postponed methodology has a greater inflexibility than the current one.”
The chamber has been actively communicating with BCCR representatives, letting them know its concerns regarding the lack of liquidity in the market as well as the new reserve methodology.
Concerning the 60-day delay, Ortega said it is not an extensive period but added she is keen on continuing to meet with the BCCR management to discuss changes in the upcoming methodology.
On March 6, Ortega met with representatives from BCCR in an effort to negotiate this and other issues affecting the various financial institutions.
In February, the chamber sent out a fivepage letter to all of the heads of financial institutions including de Paula.
The chamber, which represents public and private banks, as well as other financial institutions regulated by the Superintendence of Financial Entities (SUGEF), requested a concrete plan to gradually reduce the legal minimum reserve to 10 percent in order to avoid a liquidity crisis, the letter stated.