From Aldesa’s Blog, Pulso Bursátil:
The latest data from the Costa Rican Banking Association shows that high interest rates in colones have encouraged a demand for dollar credit.
In April, the total portfolio of real credit in national currency grew by just 8.8% compared to the same month last year, while foreign currency loans in the banking system have expanded by 17.4%.
In the case of the dollar portfolio, it has grown at a rate of 19.7% in public banks and 16% in private banks. Also, in one year, public banks have earned a 1% share from private banks in granting credit in dollars.
Currently the total loan portfolio in foreign currency is distributed as follows: 62.9% with private banks and 37.1% with state-owned banks.
Meanwhile, the latest data on expectations of devaluation by the Central Bank continue to show that economic agents do not foresee a major change in the behavior of the exchange rate and on average expect that in 12 months, the exchange rate will be around ¢520, up from today's MONEX average of ¢500.9.
This certainty in the value of the exchange rate has led people to pursue foreign currency loans without much concern for their future assessments and valuing only the difference in interest rates in colones.
Fortunately, despite undesirable consequences such as increasing the country's foreign debt, reliance on credit lines from private banks and a population especially vulnerable to the exchange rate, access to credit in dollars has softened the impact of the budget deficit on economic activity, specifically in the areas mentioned, and it has not stalled the recovery of the construction sector.
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State banks are leading this growth, although private banks still retain 61% of the total loan portfolio in the U.S. currency.
An article in Nacion.com reports that "The growth in dollar loans from public banks is striking because it is a market that traditionally is dominated more by private financial institutions."
High interest rates, the product of the Treasury’s steady increase in financing with debt, is leading banks to seek funds abroad.
In the country the average lending rate in dollars is about 11%, considerably higher than in the United States, where the average is 4%.
This gap is the result of higher government borrowing in dollars, which has increased its debt in this currency by 165% year on year.
The banking system's need to raise money in foreign currency and other internal factors are pushing rates upward.
This is the projection by Adriana Rodriguez, head of strategy at Aldesa. "In the U.S., information from the most recent meeting of the U.S. Federal Reserve has fueled speculation that the bank's policies to stimulate the U.S. economy are entering final stages," noted an article in Elfinancierocr.com.
Across the banking sector credit in dollars increased by 17% in just twelve months (June 2011 to June 2012) ($ 1.195 million). In that period the increase in dollar portfolios was 24.7% in public banks and 12.7% in private banks.
From the Blog Pulso Bursátil by Aldesa:
Dollar credit, a bubble?