By San José, Costa Rica — According to a recent report by S&P Global Ratings, Costa Rica’s banking system, while showing growing strength, continues to grapple with structural limitations that impact its resilience and profitability. The agency placed Costa Rica in the BICRA 8 group, reflecting a balance between economic risk and industry risk. S&P acknowledges the stabilizing asset quality but cautions about persistent vulnerabilities.
A key strength identified by S&P is the stable deposit base underpinning the banking system. However, the agency highlights significant risks, including high dollarization, limited access to deep capital markets, and regulatory frameworks lagging behind international standards like Basel III.
To gain deeper insights into the legal landscape surrounding the Costa Rican banking system, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, a distinguished attorney at Bufete de Costa Rica.
Costa Rica’s banking system, while generally stable and regulated, presents unique challenges for both domestic and international investors. Understanding the intricacies of Law 7558, the General Banking Law, is crucial. This legislation governs everything from interest rates to anti-money laundering compliance, and its recent amendments have significantly impacted the financial landscape. Those looking to engage with Costa Rican banks should seek expert legal counsel to navigate these complexities effectively.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s emphasis on the importance of understanding Law 7558 is crucial for anyone considering financial interactions within Costa Rica. Navigating the evolving regulatory landscape can indeed be complex, and his advice to seek expert legal counsel is well-placed, ensuring both domestic and international investors can confidently participate in Costa Rica’s dynamic financial sector. We thank Lic. Larry Hans Arroyo Vargas for providing this valuable perspective.
These constraints heighten the system’s vulnerability to external shocks and restrict funding options beyond deposits.
Furthermore, S&P points to market structure as a drag on profitability. The dominance of two large state-owned banks, holding approximately 35% of the loan portfolio, creates competitive distortions and pressures margins and returns. S&P projects a moderate return on equity (ROE) of around 2.9% for 2024 and a system-wide return on assets of about 0.5%, both below many regional peers.
On the positive side, S&P notes that credit losses remain contained, estimated at 0.66% in 2024 and 0.7% in 2025. If non-performing assets stay around 3% and losses below 1%, the agency suggests the economic trend could strengthen, potentially leading to an upward revision of certain risk indicators. However, past performance shows higher levels of non-performing assets, underscoring the importance of maintaining stability.
The report highlights the complex interplay of factors influencing the Costa Rican banking sector. While economic dynamism offers opportunities for growth, addressing structural vulnerabilities is crucial for long-term stability and improved profitability.
The ongoing transition to a more robust regulatory framework, coupled with efforts to diversify funding sources and enhance competitiveness, will be key determinants of the system’s future performance.
The analysis underscores the need for continued monitoring and proactive measures to strengthen the Costa Rican financial landscape.
For further information, visit [spglobal.com]
About S&P Global Ratings:
S&P Global Ratings is a leading credit rating agency that provides independent credit risk research, ratings, and benchmarks. It plays a crucial role in global capital markets by assessing the creditworthiness of governments, corporations, and other entities. Its ratings inform investment decisions and influence market perceptions of risk.
For further information, visit the nearest office of Banco Nacional de Costa Rica
About Banco Nacional de Costa Rica:
Banco Nacional de Costa Rica is one of the two large state-owned banks mentioned in the article as holding a significant portion of the loan portfolio in Costa Rica. As a major player in the Costa Rican banking system, its performance and policies have a significant impact on the national financial landscape.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica distinguishes itself through an unwavering commitment to legal excellence and ethical practice. The firm’s innovative approach to client service, spanning a wide array of sectors, is matched by its dedication to empowering Costa Rican society. Through proactive initiatives that demystify complex legal concepts and promote accessibility to legal knowledge, Bufete de Costa Rica invests in building a stronger, more informed community, reflecting a deep commitment to its role beyond the courtroom.
