Bancafe Exposes Offshore Risks

Jan 1, 2007

Bancafe's meltdown in 2006 highlights areas where Guatemalan financial supervision can be improved. It also spotlights the pitfalls of offshore banking.

The decision by monetary authorities to shut down Guatemala's fourth largest bank, Banco del Café (Bancafe), late last year appears to have had little effect on other banks in the country. Analysts and financial regulators view it as an isolated case that will not dent confidence in Guatemala's banking system. But it may make participants at the retail and wholesale level much more wary in dealings with offshore financial institutions that are hard to regulate.

"The Bancafe problem should not have a big impact on the rest of the financial system, however it is to be hoped that regulation will be improved, above all in the areas of offshore banking and transparency of information," says Mauricio Choussy, managing director of Fitch Ratings in Central America.
Guatemala's Monetary Committee ordered the suspension of Bancafe in October 2006, but the bank's problems...

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