Sunday 7 March 2021

Threats to Credit for Construction

In Costa Rica the index of activity in the construction sector has had 4 consecutive months of downturn
In Costa Rica the index of activity in the construction sector has had 4 consecutive months of downturn

In Costa Rica the index of activity in the construction sector has had 4 consecutive months of downturn, and now faces the threat of new financial rules which will make access to credit more costly.

The construction sector’s main concern is the impact that interest rates will have on the new standards which financial institutions will need to comply with. They are predicting an increase in credit costs primarily because of the new rules already in force and which determine that for institutions that lend money, “… The minimum percentage level of the countercyclical estimate required is 0.33%. Each entity must register on a monthly basis expenditure equivalent to a minimum of 7% of its profits, until it reaches an optimum level defined by the Sugef. ”

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This would raise interest rates by about 0.2% according to an estimation Bernando gave to Elfinancierocr.com Alfaro, assistant manager of credit risk at the National Bank.

“… Meanwhile, the generic portfolio quality estimation will produce an increase of 50 basis points (0.5%) and, finally, the estimate for unhedged debts in dollars that do not generate foreign currency, will raise rates in dollars by 150 basis points (1, 5%). If this forecast is realized, loans will become more expensive, meaning that quotes in colones and dollars will also rise affecting not only the construction sector but all sectors.”

The expected rise in bank credit comes at a bad time for the construction sector. In the second quarter of 2016 construction designed for private use, measured by the physical progress of the works under construction, recorded an annual fall of 17.3%. See “Construction in Costa Rica: Figures for 2nd Quarter”

Source Centralamericandata.com

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