In spite of a complicated year for Costa Rica’s banks and concerns about the government deficit, the state-backed financial system is on solid footing with encouraging economic indicators expected this year, says Banco Nacional de Costa Rica’s CEO Fernando Naranjo.
With almost $7 billion in assets through June 2011, Banco Nacional de Costa Rica remained the country’s top bank by assets compared to Banco de Costa Rica’s near $5 billion in assets. Aside from good local growth, the roughly 6% appreciation of the colon versus a year earlier also boosted the sector’s performance in dollar terms
Bankers will be closely watching the colon this year, as its strength can crimp the performance of Costa Rica’s vital tourism sector, says Naranjo, who expects the currency to depreciate another 3% or 4% next year, which will benefit exports in general.
“The exchange rate has hit the floor compared to where it was for many months,” Naranjo tells LatinFinance, pointing to a possible lack of international liquidity to help dent the robust colon.
Naranjo says Costa Rica’s economic outlook is bright, boding well for the banking sector. GDP expansion this year should be around 4%-4.5%, with inflation of 5%-6%. A similar growth outlook for next year, coupled with falling inflation, will be part of a scenario where financials continue to recover from the global financial crisis, which could lead to an increase in outstanding loans in some tourist-area real estate projects.
“It has been a difficult year due to the issue of the increase in arrears, but it’s still within reasonable limits,” Naranjo says. He adds that next year should be better as the economy improves – barring major shockwaves from abroad.
“We’re expecting with economic activity beginning to accelerate a bit more, credit for the coming year could grow 12%-15% … and indices of non-performing loans will tend to diminish a bit,” says Naranjo.
“We don’t see delicate problems in the financial system,” says Naranjo, pointing to stable growth and falling unemployment. “The delicate problem in the Costa Rican economy this year and for a good part of next year is the fiscal problem.”
The government deficit is seen around 4.5% of GDP this year, though a fiscal reform package should address the issue by next year, he adds.
Costa Rica’s top bank says focusing on services for its 1.6 million clients has been key to success. Bank services for small businesses run by women has been a positive addition, says Naranjo. Expanding banking services through 2,000 retail outlet branches has also helped it consolidate its presence.
Next year should provide financing opportunities for expanding Costa Rica’s infrastructure, education and digital services, he says. LF