Q COSTA RICA – The General Superintendency of Financial Institutions (SUGEF) is proposing banks have additional capital requirements to discourage consumer and vehicle loans, and mortgages with excessive repayment terms.

The aim is avoid the excesses of indebtedness through too long term loans

Over the years, financial institutions in Costa Rica have been setting longer terms on loans with the objective of reducing the monthly payment.

The SUGEF argues that terms of over 30 years for housing loans and more than 5 in consumer loans, ie credit cards  and 7 years on car loans, encourages overindebtedness of Costa Ricans. The practice also places the bank at risk.

The change would require banks, for new loans, to increase their capital by 20% in the case of consumer loans approved for a period of more than five years and 15% for vehicle loans over a period of seven years; and an additional 10% in the case of mortgages for more than 30 years.

The initiative of the SUGEF is causing concern among bankers, as they foresee a reduction in access to credit for middle-class families.

Ronulfo Jiménez, Economic Advisor of the Costa Rican Banking Association (ABC), accepted that the reform of the Superintendency seeks to avoid the excesses of indebtedness of the people. However, he believes that increasing contributions (capital requirement), based on the share ratio, is highly detrimental because it reduces the access of middle-class families to housing loans.

In order for the regulation to go into force, it must be approved by the National Council for the Supervision of the Financial System (CONASSIF).

Stay up to date with the latest stories by signing up to our newsletter, or following us on Facebook.