QCOSTARICA – Before Semana Santa (Easter) 2020, the pandemic forced Diego’s family to abruptly close two restaurants, a parking lot and a sports academy due to the health order for the entire country. The economic crisis began and with the weeks it became clear that the reopening was a distant option.
Borrowers, who benefited from deferred payments, now face foreclosures and bankruptcies for their inability to make good on their loans.
The situation is seen at both private and state banks. And expected to worsen. For next year, it is estimated that they will begin to rise according to the Consejo Nacional de Supervisión del Sistema Financiero (Conassif) – National Council for the Supervision of the Financial System and the Superintendencia General de Entidades Financieras (Sugef) – General Superintendency of Financial Entities (Sugef), as they phase out loan easing measures.
The banks, in their effort to recover assets, have been executing guarantees mainly on properties, but also vehicles. Up to September, the recovery of assets acquired for bad loans amounted to ¢387,734,000,000 colones, that is, an increase of 51% in the last five years.
The execution of a guarantee is carried out when it is not possible to reach a payment arrangement with the debtor and after obtaining a final judgment for judicial collection.
“It is expected that, during the year 2022, as the return to normality continues, there will be increases in accounts such as goods acquired in loan recovery, the amount of which will depend on the recovery rate of the economy and the level of employment,” stressed Rocío Aguilar, head of the Sugef.
The official stressed that collateral assets are not the objective of a financial institution, but the last resort to recover a loan.
The foreclosure of the properties that back a loan means a cost and financial deterioration for a bank.
The regulations oblige entities to make an estimate to cover the value of said asset. Then, as more properties and vehicles acquired in loan recovery grow, the more resources the institution must allocate for its recovery and maintenance, draining.
To prevent this situation from becoming a problem, Conassif agreed to allow financial institutions for a longer period of time to reserve the assets acquired for a period of 48 months, instead of the original 24 months, according to Conasiff president, Alberto Dent.
The Conassif board agreed, in March of last year, to establish this measure temporarily. “The possibility of amortizing the value of the asset in a period of 48 months remains as it is. We are not going to change it at this time, at least we will leave it for the entire of 2022. We see no justification to change it, especially since, with the elimination of regulatory flexibility, we are estimating that banks will have to make decisions about non-viable clients,” explained Dent.
The President of Conassif explained that the regulatory exceptions were applied in a prudent manner, it will continue to be done in the same way.
Evolution by sector
The information from the Sugef shows that in all segments of the financial system there was an increase in the balance of foreclosed assets due to non-payment of loans in the last five years.
The state banks, Banco Nacional (BN), Banco Popular and Banco de Costa Rica (BCR), reported a balance of properties acquired for ¢256.8 billion colones, that is, a growth of 32% in five years. Meanwhile, in the eleven private banks the amount amounted to ¢87 billion colones, that is, 116% more compared to the ¢40.3 billion in 2017, show the data registered on the Sugef website.
Allan Calderón, Deputy General Manager of Risk and Credit of the Banco Nacional, highlighted that the extraordinary measures approved were correct. But once completed, the effect will depend on the measures taken by each entity.
“(…) According to the particular situation of the sector and of each client, this will be the effect on delinquency that can be expected. Now, it could be expected that there are still some clients who are not going to leave before these arrangements and therefore a slight increase in arrears is to be expected,” acknowledged Calderón.
Laura Moreno, vice president of Corporate Relations at the private bank, BAC Credomatic, explained that the regulatory flexibility measures and the programs created by each bank prevented many operations from reaching a judicial collection process.
“We do not expect a significant increase in this area (foreclosed assets), since a large part of the clients who were given financial relief are complying with their obligations according to their current income,” said Moreno.
Maurilio Aguilar, director of Corporate Risk at Banco Popular, recalled that prior to the pandemic there was an inventory of operations in judicial collection and they are, in the case of the entity, those that are in execution.
“Not all economic sectors have managed to reach the levels of activity they had in the pre-pandemic times, which means that the flows of their operations have not managed to balance. If these sectors are not granted new payment arrangements, they will not be able to fulfill their commitments with the banks,” said Aguilar.
He added that if the Council and Sugef eliminate regulatory flexibility, judicial processes and adjudicated assets will increase.
